Rupee Hits Record Low: RBI Intervention Averts Fall Past 92
The Indian rupee has recently plunged to a record low against the dollar. On Thursday, the currency faced significant pressure due to heightened dollar demand associated with the maturity of non-deliverable forward positions and corporate hedging. The Reserve Bank of India (RBI) intervened to prevent the rupee from breaching the crucial 92 mark, ending the trading session at 91.9550 per dollar—down 0.2% from its previous close. At one point during the day, it fell to 91.9850.
Market Impact of RBI Intervention
– The RBI’s active intervention aimed to stabilize the currency amidst a backdrop of increasing dollar demand.
– The rupee’s decline has also negatively affected Indian government bonds, creating a challenging dilemma. The RBI’s efforts to enhance banking system liquidity seem to clash with its foreign exchange market interventions.
Strain on Interest Rate Swaps Market
– Expectations of further depreciation of the rupee are exacerbating pressures within India’s interest rate swaps market.
– These developments have driven overnight index swap rates higher, implying potential monetary tightening, despite macro-economic indicators suggesting stability.
Economic Growth Versus Currency Weakness
– Despite the rupee’s struggles, India is witnessing robust economic growth, anticipated to be between 6.8% and 7.2% for the fiscal year commencing in April. This marks a slight slowdown from the 7.4% prediction for the current fiscal year, as highlighted in the government’s annual economic survey.
– The survey emphasized that the rupee’s valuation does not accurately reflect India’s stellar economic fundamentals, suggesting that the weakened currency could mitigate some effects of steep U.S. tariffs.
Outlook and Investor Sentiment
– A trade agreement with the U.S. is critical for enhancing investor sentiment in Indian markets. Portfolio managers have noted that complexities in the geopolitical landscape make long-term growth projections for India more challenging.
– Foreign investment has been notably affected, with net sales exceeding $4 billion in local stocks in January alone. This trend adds to a staggering $19 billion outflow recorded in 2025.
– DBS Bank India predicts that the rupee may decline further, potentially reaching the 93-94 range this year due to dwindling capital inflows.
In conclusion, the recent drop in the Indian rupee exemplifies the ongoing challenges within the market, despite strong economic indicators. The RBI’s intervention serves as a critical measure to stabilize the currency and protect India’s economic interests, but the future remains uncertain as geopolitical and market conditions evolve.