Rupee slips below 90 per dollar on persistent corporate dollar demand

The rupee breached the 90-per-dollar level amid sustained corporate dollar demand and FPI outflows, even as banking system liquidity turned surplus after two weeks

The rupee on Friday depreciated, trading below the psychologically crucial 90 against the dollar, due to companies’ constant demand for the American currency, according to dealers.

 

The volumes traded remained low owing to this being holiday time in the United States (US). This contained further volatility during the day.

 

The local currency settled at 90.21 against the previous close of 89.97.

 

“When the rupee reached 90, ‘maximum stop loss’ was put into operation. The Reserve Bank of India (RBI) is protecting the level since December 19, but ultimately had to leave because outflows by foreign portfolio investors in debt/equity continued.  Importers hedged the lower levels they got up to 89.30 but the RBI’s short positions have kept the market wary of any upside on the rupee. The RBI has to buy dollars on the respective date as the shorts have increased to $66 billion in November,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

 

 

The central bank’s outstanding net short dollar position in the rupee forward market rose further to $66.04 billion by the end of November, against $63.6 billion by the end of October, the latest data from the RBI showed.

 

The local currency last year weakened 4.74 per cent, emerging as one of the worst performers among its Asian peers. The weakness was driven by uncertainty on American trade policies and high interest rates in developed markets such as the US and Japan, key sources of carry trade capital and sustained outflows as global capital gravitated towards markets giving higher returns.

 

On the other hand, net liquidity in the banking system on Wednesday turned surplus after two weeks on the strength of government expenditure.

 

It was in surplus by ₹17,335 crore and ₹23,865 crore on Wednesday and Thursday, respectively.

 

Experts expect liquidity to improve as the government begins deploying its cash surplus, especially following corrections in goods and services tax (GST), with the impact becoming visible in the first week of January.

 

While a GST outflow of about ₹1 trillion around January 20 will be the key near-term drain, the absence of advance tax payments and the RBI’s planned purchases of ₹1.5 trillion in open market operations (OMOs), along with a $10 billion buy-sell swap in January, are expected to keep system liquidity in surplus.

 

However, to ensure that liquidity stays meaningfully positive, around 1 per cent of net demand and time liabilities (NDTL), the RBI may have to conduct additional OMOs of about ₹1 trillion in February and March because the drain related to forex intervention persists and currency demand rises in the March quarter.

 

“System liquidity has turned surplus again on the back of a pickup in government spending. With the RBI’s OMOs and buy-sell swaps lined up, it should remain meaningfully positive, close to 1 per cent of NDTL, through January,” said Gaura Sen Gupta, chief economist, IDFC FIRST Bank.

 

India’s foreign-exchange reserves increased by $3.2 billion to $696.6 billion during the week ended December 26.

 

Reserves increased on the back of a rise in gold reserves, which increased by $2.95 billion during the reported week.

 

Foreign-currency assets increased $184 million.

 

Reserves had hit a record high of $705 billion in September 2024.