Rupee falls to an all-time low, RBI intervention counters bearish tilt

The Indian rupee fell to an all-time low on Thursday, pressured by a lingering depreciation bias and heightened demand for the US dollar in the non-deliverable forwards (NDF) market, while the central bank's intervention helped prevent sharp losses.

The rupee hit a low of 84.88 against the dollar before closing at 84.8575, down slightly on the day.

The dollar index was little changed at 106.5, unfazed by the elevated odds of a December rate cut by the Federal Reserve, after data showed that US consumer prices rose in-line with expectations in November. US bonds yields gained on Thursday.

"Increased uncertainties from the incoming Trump administration at a time when the US economy is already resilient suggest that term premium and implied real yields should stay elevated," DBS Bank said in a note.

While dollar-rupee forward premiums rose on Thursday in reaction to the heightened odds of a Fed rate cut and on the back of an elevated USD/INR overnight swap rate, they were pegged by the central bank's USD/INR buy-sell swaps later in the session.

The one-year implied yield rose 7 basis points to a peak of 2.24 per cent during the session before reversing course to trade nearly flat.

The Reserve Bank of India's (RBI) forex swaps, likely intended to avoid directly impacting cash in the system as it supports the rupee, and the arbitrage between the offshore and onshore markets have inverted the dollar/rupee forward premiums curve.

The RBI has been routinely selling dollars in the spot market, like on Thursday, to support the local currency as it has consistently hit new all-time lows. Bearish bets on the rupee have climbed to a two-year high, according to a Reuters poll.

Investors now await India's retail inflation data, due at 4 P.M. IST, with economists polled by Reuters expecting inflation to have moderated to 5.53 per cent year-on-year in November, down from 6.21 per cent in October.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)