Indian Rupee Hits Record Low Amid Outflows and Dollar Demand
The Indian Rupee (INR) fell to its weakest level on record on Thursday, reaching an all-time low of 84.3775 against the US Dollar (USD). The currency's decline was fueled by persistent outflows from local equities and expectations that a stronger U.S. Dollar would follow the outcome of the U.S. presidential race, particularly with Donald Trump's victory.
Rupee Ends the Session at 84.3725
The Indian Rupee ended the trading session at 84.3725, marking a 0.1% drop from its previous close of 84.28, which had been its previous record low. Despite most other Asian currencies rising and the USD index dipping by 0.2% to 104.9, the INR failed to benefit due to heavy demand for the US Dollar from foreign banks, traders noted. This demand was likely driven by custodial clients looking to secure USD positions.
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| The Indian Rupee (INR) falls to an all-time low of 84.3775 against the US Dollar (USD) as foreign investors pull out of Indian equities and global market uncertainty increases |
Foreign Outflows Weigh on the Rupee
Traders pointed to foreign investors pulling capital from Indian equities as a key factor contributing to the pressure on the rupee. In November alone, more than $1.5 billion has been withdrawn from Indian stocks, adding to the $11 billion in outflows recorded in October. As a result, major Indian equity indexes, such as the BSE Sensex and Nifty 50, ended the day lower by over 1% each.
State-Run Banks Step In to Limit Losses
Despite the intense selling pressure, state-run banks were "mildly present" in the market, offering some support for the rupee. According to traders, this helped limit the extent of the currency's decline. The Reserve Bank of India (RBI) has been actively intervening through state-run banks to help manage the rupee’s volatility, contributing to its relatively muted fluctuations compared to its regional peers.
RBI Likely to Maintain Market Presence to Cap Volatility
"Although the rupee is experiencing pressure due to foreign equity outflows, we expect the RBI to continue its strong presence in the market to cap further FX volatility," said MUFG Bank in a note.
Focus Shifts to U.S. Federal Reserve Policy Decision
Looking ahead, attention is now turning to the U.S. Federal Reserve's policy decision, expected to be announced after midnight IST. The Fed is widely anticipated to cut rates by 25 basis points, with investors closely monitoring Chair Jerome Powell’s commentary for signals about the Fed’s future policy direction and its potential impact on the USD/INR exchange rate.