Rupee hits record low as US dollar climbs, portfolio outflows continue

The rupee hit an all-time low on Friday as the dollar's post-US election rally gathered steam again, while foreign investors' continued exodus from domestic equities and bonds also weighed on the local currency.

The rupee weakened to 84.4975 per US dollar in early trading on Friday, eclipsing its previous all-time low of 84.4925 on Thursday. It was at 84.49 as of 10:40 a.m. IST, little changed on the day.

The greenback's strength after Donald Trump's victory in the US elections and overseas investors pulling out over $4 billion from local equities and debt have hurt the rupee this month.

The dollar has rallied more than 3 per cent since the Nov 5 US presidential election on bets that Trump's policies could reignite inflation and temper the Federal Reserve's future rate cuts.

The gains paused earlier in the week but restarted on Wednesday due to heightened geopolitical risks and after Fed officials signalled caution on rate cuts.

The rupee, meanwhile, has weakened nearly 0.5 per cent so far in November, although the Reserve Bank of India's routine interventions, including on Friday, have limited the decline. Its Asian peers have lost between 0.9 per cent to 2.2 per cent this month.

"A strong dollar continues to create a depreciating bias for currencies globally ... However, interventions by the RBI, supported by India's healthy foreign exchange reserves, should help keep rupee volatility in check," said Rajani Sinha, chief economist at CareEdge Ratings.

State-run banks were spotted offering dollars, on behalf of the RBI, with traders pointing "especially strong" offers near the 84.50 level.

At this point, "there is limited interest from interbank traders in selling dollars and very muted inflows, so the central bank will likely stay active to smoothen sharp moves," a senior trader at a state-run bank said.

While the RBI has said it aims to ensure the market is "liquid and deep and functioning in an orderly manner," the interventions have led to the rupee's overvaluation against the currencies of India's major trading partners.

The rupee's 40-currency real effective exchange rate (REER), a measure of its competitiveness, shows the currency was overvalued by 7.21 per cent at the end of October, RBI data showed.