Home / Economy / Rupee drops by 32 paise to close at record low again on corporate dollar demand

On Thursday, the Indian rupee edged closer to a record low against the dollar as rising oil prices dampened sentiment. Traders pointed to corporate dollar demand and outflows on payments for defence as factors that were hurting the local currency.

At the inter-bank foreign exchange market, the local currency opened on a positive note at 81.52, then pared all the gains to settle at an all-time low of 81.94 against the American currency, registering a decline of 32 paise over its previous close. India's financial markets were shut on Wednesday for a holiday.

Outflows due to defence-related payments and oil importers bidding for dollars accelerated the rupee's slide, said Mumbai-based traders.

According to a different trader at a private bank, the local unit's problems were exacerbated by speculative demand for dollars and demand from importers motivated by concerns that the rupee might fall below 82 in the near future.

After the producer club OPEC+ decided to reduce output, oil prices remained around $94 per barrel. Since last week, oil has increased by about $10/barrel after losses were caused by concerns about declining demand.

Given that India is the third-largest oil importer in the world, any further increase in crude prices could be bad for the rupee.

Meanwhile, the dollar index rebounded from trading under 111 earlier in the session, while US yields also crept higher toward 3.78%.

Further dampening the mood, J.P. Morgan announced late on Tuesday that Indian bonds would remain on the watch list of a popular emerging market index, possibly delaying inclusion until next year.

The inclusion of India in the index this year, which was predicted to generate $30 billion in dollar inflows, was anticipated by the markets.

J.P. Morgan's decision comes at a time when the rupee is being squeezed by a large trade deficit and volatility in portfolio flows.

Traders said that the local currency has frequently fallen to just below 82-per-dollar in recent sessions, which is probably what prompted the Reserve Bank of India to intervene and take action.

Traders now reckon that the rupee's new range is probably between 81 and 82, with higher risk of a fall below 82.

(With inputs from agencies)

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