The Indian rupee tumbled to an unprecedented low against the US dollar on Monday, marking a volatile session for the currency markets. The domestic unit breached a critical psychological level, reflecting a combination of offshore market pressures and persistent global trade anxieties.
Rupee Plunges Amid Offshore Pressures and Trade Woes
During Monday's trading, the rupee touched an all-time intraday low of 89.76 before managing to pare some losses. It finally settled at 89.55, a decline from its previous close of 89.46 on Friday. This depreciation occurred despite robust domestic economic indicators and soaring equity markets, highlighting the dominance of external factors.
Market experts pointed to two immediate triggers for the sharp fall. Firstly, the maturity of large non-deliverable forward (NDF) positions in offshore markets created significant selling pressure. Secondly, the lingering absence of a comprehensive trade deal between the United States and other major economies continued to fuel investor caution and risk aversion globally.
Forex consultant KN Dey described the movement as a "small-scale attack" that originated in offshore trading, which subsequently triggered stop-loss orders in the onshore market, amplifying the rupee's downward spiral.
Bond Yields Climb as Rate-Cut Hopes Dim
Parallel to the currency turmoil, the debt market witnessed a sell-off. The yield on the benchmark 10-year government bond rose sharply to 6.57%, reaching its highest point in over two months. This surge in yield, which moves inversely to bond prices, was primarily driven by strong domestic GDP data that reduced market expectations for an imminent interest rate cut by the Reserve Bank of India (RBI).
The record-low rupee added further pressure on the bond market, complicating the macroeconomic picture. Traders have begun scaling back their dovish expectations ahead of the crucial RBI monetary policy committee meeting scheduled for December 3-5.
Additionally, liquidity withdrawal in the banking system, partly due to the RBI's dollar sales aimed at stabilizing the rupee, unsettled bond traders and contributed to the bearish sentiment.
Market Interventions and Underlying Concerns
Dealers confirmed that the Reserve Bank of India actively sold US dollars in the market to prevent the rupee from breaching the psychologically significant level of 90. This intervention helped the currency recover slightly from its intraday low.
Beyond the immediate triggers, analysts cite deeper, persistent pressures on the Indian rupee. These include:
- Geopolitical concerns surrounding global tariffs and trade tensions.
- Weak foreign investment flows into Indian capital markets.
- Broad strength in the US dollar on the global stage.
The confluence of these factors suggests that volatility in the forex and bond markets may persist in the near term, with all eyes now on the upcoming RBI policy announcement for directional cues.
