By Jaspreet Kalra and Nimesh Vora
MUMBAI, Jan 29 (Reuters) – The Indian rupee hit an all-time low on Thursday, as continued weakness in foreign capital flows and rush to hedge against further depreciation overshadowed impulses from a buoyant domestic economy.
The rupee declined to 91.9850, eclipsing its previous all-time low of 91.9650 hit last week.
The currency has declined 2% so far this year and nearly 5% since U.S. President Donald Trump imposed steep tariffs on India’s merchandise exports. That’s even as India’s GDP grew 8.2% in the quarter ended September 30, according to official data.
The Reserve Bank of India likely intervened before the local spot market opened on Thursday, traders said. The intervention was likely intended to slow the fall as the rupee approached the psychologically important 92 level, a trader at a foreign bank said.
The rupee has declined to near 92 levels after breaking past 91 for the first time only six trading sessions earlier. The central bank has maintained it does not target any level or band on the currency and only steps in to curb excessive volatility.
PERSISTENT PAIN
Steep U.S. tariffs, chunky foreign portfolio outflows, rise in bullion imports and corporate anxiety over the rupee’s fortunes have kept the currency under pressure even as India continues to be the world’s fastest growing major economy, recently closing a free trade deal with the European Union.
Since the tariffs came into effect, the rupee has declined 7.5% each against the euro and the Chinese yuan too. On a trade-weighted basis, the rupee’s real effective exchange rate stood at 95.3 in December, the lowest in a decade, according to central bank data.
“While we anticipate current elevated US tariffs on Indian exports to eventually be lowered, the delay in the meantime remains a drag on India’s external balances,” analysts at Goldman Sachs said in a note. The firm expects the rupee to fall to 94 per dollar in the next 12 months.
“RBI is more comfortable allowing flexibility in the INR and will likely replenish FX reserves on USD/INR dips, which should limit INR appreciation.”
A shift in corporate hedging activity has also been a sore spot for the INR with importers and corporate firms stepping up protection against a weaker rupee while exporters have slowed dollar sales in the forward market, reducing supply and exacerbating pressure on the currency.
(Reporting by Jaspreet Kalra and Nimesh Vora; Editing by Sonia Cheema and Ronojoy Mazumdar)