MUMBAI: The rupee plunged to a record low on Friday, closing at 85.53 against the dollar from it’s previous close of 85.26. In Friday’s trades, it briefly touched an intraday low of 85.80 – its sharpest fall in nearly two years, Bloomberg reported.
The fall in the rupee was driven by panic dollar buying from importers, increased month-end demand, and maturing non-deliverable forwards (NDFs), which heightened dollar demand in the market. RBI eventually stepped in to stabilise the rupee, selling dollars to counter the rising pressure. However, the broader market environment remained unfavourable, with rising US Treasury yields, higher crude oil prices, and persistent foreign fund outflows capping the rupee’s recovery.
Dealers said RBI – which held $21 billion in short-term forward contracts – refrained from rolling them over, leading to a scarcity of dollars and an oversupply of rupees. “The rupee hit the 85.80 level today before RBI stepped in to sell dollars. Interestingly, there was no supply of dollars from RBI for nearly an hour, allowing the rupee to slip significantly – a surprising deviation from its typical approach. It looks like some players had built up short dollar positions pre-Trump victory, which are maturing at year-end,” KN Dey, a forex consultant who advises corporates on currency, said.
“Monday is likely to remain quiet due to year-end holidays, with activity expected to pick up from the end of the first week. Looking ahead, the new year is expected to bring a resumption of inflows, potentially stabilising the exchange rate,” he added.
