Rupee Holds Ground Against US Dollar Despite Global Pressure
The Indian rupee managed to stay above its historic low on Friday, thanks to timely intervention by the Reserve Bank of India. This defensive action came even as reduced expectations for US interest rate cuts weakened risk appetite worldwide and dragged global stock markets lower.
Early indicators suggested the rupee might open near or below its all-time low of 83.80 against the US dollar before domestic spot trading began. However, the currency staged a modest recovery, trading at 83.7325 by 10:30 AM IST, supported by what market experts believe was strategic RBI involvement.
Central Bank's Defensive Strategy
The Reserve Bank of India likely entered both the spot and non-deliverable forwards markets to bolster the national currency, which has been hovering close to its record low for most of the current week. Market participants observed that the central bank appears determined to prevent the rupee from falling below the critical 83.80 level in the immediate future.
A currency trader from a major private bank commented: "The RBI doesn't seem willing to allow a breach below 83.80 in the near term as that level appears to be the final defense before potentially testing 85." This perspective highlights the central bank's commitment to maintaining currency stability amid challenging global conditions.
Multiple Factors Weighing on Rupee Performance
The Indian currency has faced significant headwinds throughout the year, declining approximately 3.5% year-to-date. This downward pressure stems from several factors, including substantial US tariffs on Indian exports and continuous portfolio outflows from domestic markets.
The outflow situation has been particularly notable in November, with foreign investors net selling nearly $1 billion worth of Indian stocks during the month. This foreign capital flight reflects broader concerns about emerging market assets amid shifting global monetary policy expectations.
Domestic equity markets mirrored the negative global sentiment, with India's benchmark indices—the BSE Sensex and Nifty 50—both declining about 0.3% during Friday's trading session. This performance tracked the more than 1% drop in MSCI's gauge of Asian shares excluding Japan.
Global Economic Context
The international financial landscape turned less favorable after Federal Reserve officials made hawkish comments that dampened hopes for a US interest rate reduction in the coming month. This shift in expectations triggered a more than 2% decline in the Nasdaq and pushed the 10-year US Treasury yield above 4.10%.
Analysts from DBS provided insight into the Federal Reserve's position: "Current hawkish Fed rhetoric probably reflects unease about cutting rates further amidst limited official economic data and the need for policy flexibility in December. Even somewhat weak labor market data might be enough to persuade the Fed into a hawkish cut during their next meeting."
The coordinated effort between the RBI's market operations and broader monetary policy considerations continues to provide crucial support for the rupee during this period of global financial uncertainty and shifting investor sentiment toward emerging market currencies.
