Rupee stares at 85 against dollar amid GDP worries, hits fresh low of 84.70

Falls 21p to new low of 84.70; RBI has limited intervention room

The rupee slid to a fresh low of 84.70 versus dollar on Monday, driven by concerns over slowing economic growth and heightened greenback demand in the non-deliverable forwards (NDF) market, dealers said.

 

The domestic currency declined 0.25 per cent during the day, marking its steepest fall since June 4, the day of the general election results. It closed at 84.49 per dollar on Friday.

 

The rupee has weakened by 0.73 per cent over the past month, and by nearly 1.8 per cent in 2024, so far.

 

Given the Reserve Bank of India’s (RBI) substantial short positions in the NDF market and limited room for intervention, the rupee is likely to remain under pressure for now.    

 

Trump’s tariff threat to Brics weighed on sentiment. 

 

According to market participants, the rupee breaching the 85 per dollar level is a possibility, depending on the extent of central bank actions. 

 

“Reports indicate that the RBI holds a total of $70 billion in short positions in both offshore and onshore rupee markets, leaving limited room for intervention to protect the rupee. As a result, there is a strong possibility that the rupee could breach the 85 mark,” said the treasury head at a private bank.

 

The central bank has been actively intervening in the foreign exchange market to curb volatility, with forex reserves dropping $48 billion over the past two months. During this period, the rupee depreciated from 83.70 to 84.46 against the dollar, marking a 0.89 per cent decline.

 

Underwhelming GDP data has further added to the pressure. India’s economic growth in the July-September quarter slowed to 5.4 per cent, the lowest in seven quarters and below the 6.5 per cent growth forecast by analysts. “The GDP numbers were disappointing, and expectations are that the RBI may take measures in the upcoming monetary policy meeting to boost growth, which could further impact the rupee,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

 

The RBI’s intervention has also weighed on market liquidity, though conditions have now shifted to a surplus. “The RBI has been intervening in the offshore as well as the onshore market and that is expected to continue,” said Anshul Chandak, head of treasury at RBL Bank. “I see the rupee breaching the 85 per dollar mark by December end,” he added.

 

The rupee first crossed the 84 per dollar threshold on October 11. Since the US Federal Reserve’s rate cut on September 19, the rupee has depreciated by 1.2 per cent. Prior to the rate cut, it had weakened by 0.6 per cent.

 

Sentiment also deteriorated after President-elect Donald Trump threatened 100 per cent tariffs on BRICS countries if they tried to find an alternative to the dollar, fuelling concerns among investors. The markets are now focused on upcoming US economic data, including job openings and payroll figures, as well as speeches by Federal Reserve officials, for clues on the future interest rate trajectory.  They are currently pricing in a 65 per cent chance of a 25 basis point rate cut at the Fed’s December meeting, with just two more cuts in 2025.

 

The dollar index rose 0.5 per cent to 106.26, reflecting the greenback’s strength against six major currencies.

 

“The sharp fall in the rupee is driven by sentiment, following Trump’s statement that he will impose a 100 per cent tariff on BRICS nations if they act to undermine the US dollar. This has put significant pressure on the domestic currency, particularly at a time when the RBI has been discussing plans to internationalise the rupee,” said Madan Sabnavis, chief economist at Bank of Baroda.

 

Given the recent sharp depreciation in the rupee, market participants believe the real effective exchange rate (REER) might have decreased in November. Official data will be released later this month. “The REER should have come down because domestic inflation continues to be high relative to global inflation,” said Sabnavis.

 

The REER was at 107.20 in October, according to RBI data.

 

As the markets await the Monetary Policy Meeting, traders are looking for clarity on the central bank’s next steps. “The rupee fell sharply on Monday as the RBI stepped back from intervening in the forex market. Perhaps, it wants the rupee to find its level. The RBI protects rupee to a certain level only; that has been the pattern. It’s quite possible that the rupee could breach 85 levels. A lot will depend on the next two weeks and also on what the RBI does in the monetary policy committee meeting,” said a treasury head at another private bank. The December MPC review is scheduled for release on Friday (December 6).