Rupee Plunges to Historic Low in Mumbai, Posts Worst Monthly Performance Since 2022
The Indian rupee experienced a significant decline in late trading on Friday, reaching a record low and concluding its worst monthly performance since September 2022. This downturn occurred despite active intervention by the Reserve Bank of India in the foreign exchange market, highlighting persistent pressures from foreign portfolio outflows and robust corporate dollar demand.
Record Low and Monthly Decline
During the trading session, the rupee touched an unprecedented low of 91.99 against the US dollar, ultimately closing at 91.98. This represents a drop of two paise from its previous close of 91.96. Over the month of January, the currency fell by nearly 210 paise, underscoring a challenging period for the local unit.
Intervention efforts by the Reserve Bank of India were crucial in preventing the rupee from breaching the psychologically significant 92-per-dollar level. However, market dealers have cautioned that risks of gradual depreciation persist, suggesting ongoing vulnerabilities in the currency's stability.
Factors Driving the Decline
The sustained pressure on the rupee can be attributed to several key factors:
- Weak Foreign Capital Inflows: Foreign investors sold approximately $4 billion worth of domestic equities in January, following substantial outflows of nearly $19 billion in the previous year.
- Elevated Corporate Demand: Strong dollar buying linked to importer needs and corporate hedging, including significant demand from bullion imports, has weighed heavily on the currency.
- Firmer Dollar Internationally: The US dollar gained 0.4% in international markets, adding to the rupee's challenges during the session.
Market Dynamics and Intervention Impact
Throughout the trading day, the rupee was caught between a strengthening dollar and RBI intervention, which helped mitigate the impact of weaker domestic equities. Initially, it traded at 91.95 per dollar in the first half, showing marginal strength compared to the previous close, before slipping to its record low later in the day.
This scenario highlights the complex interplay between global market forces and domestic monetary policy, with the RBI's actions providing temporary relief but not fully offsetting underlying economic pressures.
