Rupee falls on NDF dollar demand after Friday rebound, ends at 89.65

The rupee slipped to 89.72 per dollar on Monday on strong dollar buying in the NDF market, before trimming losses to close at 89.65 as dealers flagged a shift in RBI's approach

After the sharp recovery on Friday, rupee fell again on Monday up to 89.72 per dollar — against the previous close of 89.30 — due to strong dollar bidding in the non-deliverable forward (NDF) market. However, it regained some ground later to settle at 89.65 per dollar.

 

The sharp move on Friday marked a clear shift in the Reserve Bank of India’s (RBI’s) approach, with the central bank allowing wider two-way movement in the currency, said dealers. It effectively levelled the playing field for both importers and exporters after the rupee swung dramatically from around 88 to nearly 91 without any meaningful correction, they said.

 

A combination of factors, including delay in securing a trade deal with the US coupled with foreign outflows, resulted in a sharp weakening of the rupee, which breached the 91/$ mark during the previous week. After a highly volatile week that saw the currency hit fresh lows for four consecutive sessions, the rupee ended the week about 1.3 per cent stronger against the dollar. It oscillated between 91.08 and 89.25 amid choppy trade. 

The rupee continues to remain the worst performing Asian currency with 4.5 per cent depreciation witnessed in the current calendar year so far. The local currency has depreciated by 0.2 per cent in December so far.

 

“The RBI has allowed movement in the currency pair, thus giving importers and exporters equal opportunity after the big movement from almost 88 to 91 without any correction. The trade deal still hangs by the thread, with India and the US not blinking at the farm products opening,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

 

Market participants said that the RBI’s ability to intervene in the foreign exchange market could be constrained by its already large short positions in the NDF and onshore forward markets, prompting the central bank to potentially unwind some of the shorts built around the 88.80 level to preserve room for future intervention, if needed.

 

“In 2025, it is an observance that after rupee depreciates sharply, it once comes back to the level from where the depreciation started, giving that one chance to importers to hedge their exposure, but after that it also ends up making a new low with time,” said Kunal Sodhani, head of treasury, global trading centre, FX & rates treasury at Shinhan Bank India.