Rupee closes at near 18 month-low, ends at 75.52 to the dollar

The Indian rupee closed at a nearly 18-month low on Thursday, a day after the Reserve Bank of India (RBI) maintained a status quo on policy rates but tightened excess liquidity from the banking system.

The partially convertible currency closed at 75.52 a dollar, the lowest since July 1, 2020, when it had touched 75.59. The rupee had closed at 75.45 a dollar on Wednesday, the policy day.  

According to currency experts, pressure on the rupee would continue; some even said the domestic currency may cross its record low levels as the US Federal Reserve withdraws its easy money policy and move towards tightening of rates. 

The rupee touched 76.92 a dollar in the intraday trade on April 22 last year.

“Within six to seven months, the rupee can be expected to move towards 78-plus level as the Fed becomes hawkish to rein in inflation, triggering strengthening of the dollar," said Samir Lodha, managing director of QuantArt.  

“The record trade deficit will be an additional sore point for the rupee, while the RBI will ensure there's no currency crisis,” Lodha said.  

The dollar index, which measures the dollar’s strength against major currencies, continued to strengthen and rose 0.18 per cent to 96.067.  

On an intraday basis, the rupee fell 0.086 per cent even as many Asian peers rose against the dollar. Year to date, the rupee has fallen 3.244 per cent against the dollar. In a recent report, economic research firm QuantEco said that the rupee is likely to lose as it had outperformed its trading partners in the recent past.

The relative outperformance of the rupee in the recent past against other currencies in the region could “increase its overvaluation on a real effective exchange rate (REER) basis to 9.4-9.9 per cent in Nov-21, the strongest level in nearly 4-years,” QuantEco wrote in a report.

“Seen from a historical context, the current negative correlation between the dollar index and USDINR is getting ripe for a reversal. This holds from a REER perspective as well, where historical reversals in overvaluation have got triggered in the 8-12 per cent range,” QuantEco said.

Foreign investors have been net sellers of Indian equities in all trading sessions since November 18, withdrawing almost $5 billion during this period, said Sriram Iyer, senior research analyst at Reliance Securities.  

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“Technically, the USDINR Spot pair immediate hurdle now is at 75.67 levels and a break above will push the pair to 75.83 and ultimately to 76.00 levels," Iyer said, adding, supports are at 75.30 and 75.22 levels.