Rupee hits fresh low on outflows and US trade deal delay; bond yields ease

Rupee depreciated to a fresh all-time low as foreign outflows and uncertainty over the US-India trade deal pressured sentiment, while an RBI OMO purchase auction helped soften government bond yields

The rupee hit a fresh closing low of 90.37 per dollar on Thursday, pressured by foreign outflows from both bonds and equities. Uncertainty around the trade deal with the US also weighed on sentiment. The Indian unit slipped to a fresh intraday low of 90.49 before recovering some losses after the Reserve Bank of India intervened in the foreign exchange market through dollar sales, dealers said. The previous all-time closing low was on December 3 when it hit 90.20. 

The rupee, which depreciated 0.45 per cent on Thursday, is the worst-performing Asian currency this year, slipping 5.26 per cent against the dollar. 

“There were some outflows, and stop losses were triggered,” said a dealer at a state-owned bank. “In the middle of the day, there was some comment from a government official that a trade deal would happen by the end of March, which put downward pressure. The market was expecting the trade deal to be finalised by December,” he added.

 

Chief Economic Advisor (CEA) V Anantha Nageswaran on Thursday said India and the US have ironed out “most of their pending differences” on trade, and that a formal agreement could be in place by March 2026.

 

“The CEA’s statement further increased the uncertainty in the market. On top of it, Mexico imposed up to 50 per cent tariffs on goods from Asia, including India,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors.

 

Market participants said stop losses were triggered at the 90.25 level. They also noted that RBI’s intervention was mild, in line with recent weeks. The central bank is likely to have reduced its net short forward positions, which went up in September and October and contributed to volatility, dealers said.

 

“The rupee is expected to trade toward 91 per dollar in the near term if the outflows continue,” said a dealer at a private bank. “The next level is seen as 90.65 per dollar, if we break that, we might touch 91 per dollar soon,” he added.

 

Meanwhile, the RBI accepted government bonds at yields 2-3 basis points below prevailing market levels at its Open Market Operation (OMO) purchase auction, which helped soften yields across tenures.

 

The RBI received bids worth ₹1.1 trillion against the notified amount of ₹50,000 crore.

 

The yield on the 10-year government bond settled at 6.58 per cent, against the previous close of 6.63 per cent.

 

“The OMO auction sailed through, the RBI accepted bonds at 2-3 bps lower than market levels, that’s why we saw the rally after results,” said a dealer at a primary dealership. “The next cue is tomorrow (Friday) auction and CPI data,” the person added. The RBI will conduct a ₹28,000 crore sale of government bonds at the weekly auction on Friday.

 

The central bank has also announced liquidity measures through OMOs and forex buy-sell swaps. It will purchase Government of India securities worth ₹1 trillion in two tranches of ₹50,000 crore each. The second auction is scheduled for December 18. Additionally, a USD/INR buy-sell swap of $5 billion for three years will be conducted on December 16.