 "Rupee weakens on corporate dollar demand as thin volumes cap moves")
Rupee depreciated by 0.1 per cent on Thursday to settle at 89.97 per dollar due to corporate demand for dollars, said dealers. Trade volume remained low, which led to minimal movement during the day.
What factors weighed on the rupee in the near term?
“The Indian rupee weakened against the US dollar as a lack of major catalysts left the market searching for direction. Thin liquidity, driven by restricted supply and persistent demand, put upward pressure on the pair as major forex markets observed the New Year holiday today (Thursday). Looking ahead, the rupee is expected to trade within a near-term range, finding support at 89.40 per dollar and resistance at 90.26 per dollar,” said Dilip Parmar, senior research analyst, HDFC Securities.
How did the rupee perform over 2025?
The local currency weakened by 4.74 per cent in 2025, emerging as one of the worst performers among Asian peers. The weakness was driven by uncertainty around US trade policies; persistently high interest rates in developed markets such as the US and Japan — key sources of carry-trade capital; and sustained FII outflows, as global capital gravitated towards higher-return markets. The rupee touched a low of around 91 before retracing below 90, aided by strong and timely intervention by the RBI via dollar sales.
Can the RBI continue to manage volatility effectively?
While the central bank has consistently emphasised volatility management rather than defending specific levels, past episodes suggest it may still draw informal lines in the sand, said market participants. The level of 88.80 per dollar was defended for a long period before eventually being breached. Recent lows around 91.40 per dollar could serve as a similar reference point. That said, the RBI’s ability to intervene may be constrained by its short forward positions, making its liquidity-management strategy and forward book a key area of focus.
Will the RBI defend key levels again?
“While the relative rupee weakness was likely engineered earlier on to correct rupee overvaluation and offset the impact of tariff differential, it soon became muscle memory and market positioning started getting skewed, giving the RBI a difficult time,” said Abhishek Goenka, founder & CEO of IFA Global. “RBI's stated objective has always been to contain volatility. However, if the pressure on the rupee continues, it will be interesting to see if it defends a particular level in a steadfast manner again, like it did at 88.80, a level it had to eventually let go off. One would assume that recent all-time lows around 91.40 could be that level now,” he added.
How did the bond market fare?
On the other hand, the government bond market remained steady due to a lack of significant cues, said dealers.
The yield on the benchmark 10-year government bond settled flat at 6.58 per cent, unchanged against Wednesday.