The rupee fell by 11 paisa on Tuesday, closing at the 84-per-dollar mark, reflecting weakening in its Asian rivals and foreign outflows, traders said. The local currency finished at a new low of Rs 83.96 per dollar, down from Rs 83.85 on Monday and the day's low of Rs 83.97/$. The Reserve Bank of India (RBI) intervened in all areas of the foreign currency market, preventing a significant devaluation. Market participants reported that the dollar was in high demand in the offshore market, which impacted on the Indian currency.
The dollar index, which measures the dollar's strength against a basket of six major currencies, increased to 103.11 on Tuesday from 102.68 on Monday. To reduce currency rate volatility, the RBI intervened through dollar sales in the Non-Deliverable Forwards (NDF), spot over-the-counter (OTC), and futures markets, they added.
"The RBI was present in the NDF market prior to trading hours, as well as in the spot and futures markets," stated a trader at a state-owned bank. "We see the rupee touching Rs 84 per dollar in the next 2-3 trading sessions," he said.
The local currency fell to 84.20 per dollar in the offshore market after trading hours on Monday. However, it began at 83.85 per dollar on Tuesday, after the RBI intervened in the NDF market prior to trading hours. "The RBI was present in all three markets, and they could have sold around $1 billion today (Tuesday)," explained Anil Kumar Bhansali, head of treasury and executive director of Finrex Treasury Advisors LLP.
The RBI has developed a robust pool of foreign exchange reserves, which stood at $667 billion for the week ending July 26, comparable to around 11 months of imports estimated for 2024-25. The central bank has always said that it intervenes in the foreign currency market to reduce volatility and does not target any certain level.
"The rupee is expected to be in a range of Rs 83.85 per dollar to Rs 84.05 per dollar tomorrow (Wednesday) with buying of the dollar expected to continue and RBI supporting the rupee at a particular level," according to Bhansali. Fears of a future US recession, along with the unwinding of a frequently used Yen carry trade, have had a big impact on mood in the currency market.
"The rupee has suffered as Foreign Portfolio Investors (FPIs) have pulled out in recent sessions. A portion might be ascribed to the 'Yen investors' leaving. Carry trades employing the Yen, which have historically been popular with investors, lose their luster as those who unwind incur losses. Because this occurred so soon after the unemployment announcement in the United States, it elicited an overblown response, with some interpreting it as suggesting a recession," Madan Sabnavis, Chief Economist at Bank of Baroda. Furthermore, according to Madan Sabnavis, Chief Economist of Bank of Baroda, the markets responded based on emotion rather than facts.
