Rupee hits record low of 92.64/$ on importer demand, thin dollar liquidity

Currency weakens on importer demand and thin dollar liquidity, with trade deficit concerns and Fed policy outlook weighing on sentiment

The Indian rupee fell to a fresh low of 92.64 per dollar on Wednesday, breaching the psychologically important 92.50 mark amid sustained importer demand for dollars. The pressure was compounded by thin dollar liquidity ahead of a bank holiday on Thursday. Concerns over a widening trade deficit also weighed on the currency, dealers said. 

The Reserve Bank of India (RBI) was seen defending the 92.50-per-dollar level, which was breached as the rupee fell 0.28 per cent on Wednesday. 

“The RBI allowed 92.50 to be breached towards the end of the day. For now, the war continues, and higher oil prices are likely to keep India’s current account deficit (CAD) elevated until prices fall to $80 a barrel or below,” said Anil Kumar Bhansali, executive director and head of treasury at Finrex Treasury Advisors. 

 

The rupee, which closed at 92.38 per dollar on Tuesday, has depreciated 7.74 per cent against the dollar so far this financial year. It is down 1.79 per cent in March so far and 2.98 per cent in the current calendar year. 

“The Indian rupee plunged to a fresh low as a break below 92.50 per dollar sparked a sharp selloff, exacerbated by thin dollar liquidity ahead of the bank holiday,” said Dilip Parmar, senior research analyst at HDFC Securities. “Despite the backdrop of a strong risk appetite and softer crude oil prices, the currency faced aggressive importer dollar demand. With geopolitical tensions stoking fears of a wider trade deficit, year-end demand remains robust.” 

Brent crude slipped to $101 a barrel during the day before firming to $103.20 a barrel by the end of Indian trading hours, compared with $102.80 a barrel in the previous session. Meanwhile, the dollar index — which measures the greenback against a basket of six major currencies — was little changed at 99.57, versus 99.78 a day earlier. 

Market participants said traders were awaiting the Federal Reserve’s policy decision, due after market hours on Wednesday. Markets widely expect the Fed to keep rates unchanged in the 3.50-3.75 per cent range, with attention shifting to Jerome Powell’s guidance on the outlook amid rising oil prices and mixed signals from the labour market. 

“The Fed’s decision and commentary will determine the direction of the dollar index after it has remained softer for two days,” said a dealer at a state-owned bank who did not wish to be named. “The RBI allowed the rupee to breach 92.50 per dollar, but we expect intervention on Friday, depending on how the rupee trades in the non-deliverable forward market on Thursday.” 

Despite pressure on the currency and higher crude prices, government bonds remained relatively steady. The yield on the benchmark 10-year government bond settled at 6.73 per cent, versus 6.72 per cent in the previous session.