The Indian rupee settled at a record closing low of 96.35 against the US dollar on Tuesday, marking a decline of 12 paise from its previous close. The currency's fall was driven by sustained demand for the greenback from importers and foreign portfolio outflows.
Key Factors Behind Rupee's Slide
According to forex traders, the rupee opened weaker at 96.28 and touched an intraday low of 96.38 before closing at 96.35. The persistent strength of the US dollar in global markets, coupled with rising crude oil prices, added pressure on the domestic currency. Additionally, foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out funds and further weakening the rupee.
Impact on Economy
A weaker rupee makes imports costlier, potentially fueling inflation. However, it benefits export-oriented sectors such as IT and textiles. The Reserve Bank of India (RBI) is expected to intervene in the forex market to prevent excessive volatility, though its ability to stem the decline may be limited given global headwinds.
Market Reactions
The benchmark equity indices also faced selling pressure, with the BSE Sensex declining over 300 points. Bond yields edged higher as investors assessed the impact of a depreciating currency on monetary policy. Analysts suggest that the rupee may continue to face headwinds until there is clarity on US interest rate trajectory and global risk sentiment improves.
Outlook
Market participants are closely watching the upcoming US Federal Reserve meeting for cues on interest rates. A hawkish stance could further strengthen the dollar and push the rupee lower. On the domestic front, India's trade deficit and inflation data will be key factors influencing the currency's movement in the near term.
