The rupee plunged by 48 paise to hit an all-time low of 78.85 against the dollar on Tuesday, amid continuing efforts by the central bank to check upheavals in the domestic currency.
The rupee opened lower at 78.53 against the dollar and touched a new low of 78.85 against its previous close of 78.34.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.01 per cent higher at 103.95.
Forex dealers said intervention by the Reserve Bank of India in spot, forwards, and futures has failed to curb the rebound in the dollar-rupee pair amid inflation worries, widening deficits due to rising energy prices, and overall risk-off mood. As a result, they expect the rupee to touch 79.50 against the dollar over the next few trading sessions.
“USD-INR breached the crucial 78.50 threshold mark of RBI today, majorly due to unwinding of the record $4.8 billion open interest that RBI might have sold in the futures earlier to curb the fall in rupee. Traders must have bought the same and sold it over the counter to gain arbitrage. However, the same must have been unwinded before the RBI’s fixing today in anticipation of a higher fixing, leading to a sharp up move in USD-INR during the first half,” said Amit Pabari, managing director, CR Forex.
The rupee has depreciated more than 5% versus the dollar in 2022 as higher US interest rates, the surge in oil prices and record overseas investment outflows from equities have hurt the domestic currency.
The RBI has been selling forward dollars to avoid infusing rupee liquidity into the system, which has led to the one-year onshore forward dollar premiums collapsing to below 3%.
“Dislocation in forward rates, falling FX cover, persistently high commodity prices, limited exchange rate pass-through to inflation and elevated INR valuations may call for the RBI to re-orient its FX intervention strategy,” said Madhavi Arora, an economist at Emkay Global. “Allowing INR to gently weaken over time is the right strategy, giving CAD space to improve,” she added.
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