Rupee Ends 5-Day Decline: Indian Currency Recovers from Record Low Against US Dollar
The Indian rupee made a notable recovery on Wednesday, reversing a five-day decline to close at 90.38 against the US dollar, a gain of 55 paise. This rebound was attributed to what analysts believe was aggressive intervention by the Reserve Bank of India (RBI). After opening at a weak 91.05 per dollar, the rupee surged to an intraday high of 89.96, marking a significant turnaround from its record low of 91.14 reached just a day earlier.
RBI’s Intervention Sparks Recovery
Bankers reported that the RBI played a crucial role in the rupee’s recovery by selling dollars to stabilize the currency. This intervention came after the rupee had experienced a steep decline in previous sessions. The domestic currency rallied to an intraday high of 89.75 on the interbank order matching system, recovering from levels close to 91.00 before the RBI’s action. This strategy mirrors the central bank’s previous interventions in October and November, where it also sold dollars heavily in both spot and non-deliverable forward markets to counter persistent downward trends. Unlike earlier interventions that occurred before market hours, the RBI’s dollar sales on Wednesday began shortly after the onshore trading opened, indicating a proactive approach to curb the rupee’s decline.
Dilip Parmar, a research analyst at HDFC Securities, noted that while the rupee’s appreciation is a positive sign, volatility in the currency market is expected to remain high. He pointed out that the USD/INR has immediate resistance at 90.60 and support at 89.70, suggesting that traders should remain cautious in the current environment.
Factors Behind the Rupee’s Decline
The recent weakness of the rupee has been largely attributed to external factors rather than domestic economic conditions. Analysts highlighted that the rupee is among the worst-performing currencies globally this year, having depreciated approximately 6 percent against the dollar. This decline has been exacerbated by a widening trade deficit, high US tariffs, and ongoing investment outflows. Experts noted that no other currency has been as adversely affected by US tariffs as the Indian rupee, and uncertainty surrounding US-India trade negotiations has made investors wary.
Deepak Agrawal, Chief Investment Officer at Kotak Mutual Fund, emphasized that the rupee’s record low against the dollar was primarily driven by external pressures, not weaknesses in the domestic economy. He pointed to persistent capital outflows and increased dollar demand linked to non-deliverable forward maturities as significant contributors to the rupee’s decline. Despite India’s robust GDP growth and healthy foreign exchange reserves, the lack of progress in trade talks with the US and continued foreign portfolio selling have negatively impacted market sentiment.
Market Reactions and Future Outlook
The dollar index rose by 0.42 percent to 98.56, while Brent crude prices increased by 2.09 percent to USD 60.16 per barrel. Domestic equity markets also reacted negatively, with the Sensex dropping 120.21 points to close at 84,559.65 and the Nifty slipping 41.55 points to 25,818.55. Additionally, foreign institutional investors sold equities worth Rs 2,381.92 crore on Tuesday, further indicating the cautious sentiment among investors.
Looking ahead, analysts believe that the RBI’s focus will remain on curbing volatility rather than defending a specific exchange rate level. They suggest that the rupee could strengthen in the future if a trade deal with the US is finalized and capital flows improve. The current market dynamics indicate that while the rupee has shown resilience, ongoing external pressures will continue to influence its performance in the near term.
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