Rupee Nears Record Low as Central Bank Intervention Eases Pressure
Mumbai, Nov 28 (Reuters) – The Indian rupee ended November just shy of its all-time low, recording a monthly decline amid sustained pressure from dollar demand and capital outflows. Market participants said intervention by India’s central bank played a key role in containing the rupee’s fall, preventing it from breaching record lows sustained earlier in the month.
On Friday, the rupee closed at 89.4575 against the U.S. dollar, down 0.6% over the month and narrowly missing its previous record low of 89.49, which was hit on November 21. Traders noted that broad-based demand for the dollar was countered by the Reserve Bank of India’s (RBI) intervention efforts, helping to keep the rupee’s decline in check for much of the trading session.
The rupee’s recent weakness has been driven by a combination of factors, including a widening goods trade deficit in the country and diminished portfolio inflows. The trade deficit surged to a record high in October, fueled in part by a jump in gold imports and a decline in exports to the United States following the imposition of tariffs of up to 50%.
Adding to concerns, market watchers have questioned the central bank’s capacity to support the currency as effectively as before, given that it reportedly holds significant short positions in the USD/INR non-deliverable forwards market. Abhishek Goenka, CEO of FX advisory firm IFA Global, highlighted these concerns, noting the central bank’s intervention might be constrained by its existing market exposures.
Earlier this week, the International Monetary Fund (IMF) updated its classification of India’s foreign exchange regime from a “stabilised” system to what it termed a “crawl-like arrangement,” signaling more flexibility in India’s currency management policy compared to previous years.
In the trade diplomacy arena, India’s trade secretary expressed optimism about a prospective trade deal with the United States, saying on Friday that most sticking points have been resolved and that an agreement could be finalized by the end of the year. Such a deal could potentially alleviate some pressures on India’s export sector.
Elsewhere in currency markets, the U.S. dollar index rose by 0.2% to 99.75 but was on track for a weekly decline as investors anticipated possible Federal Reserve interest rate cuts in the coming month. Asian currencies showed mixed performance, with the offshore Chinese yuan hovering near its strongest level in over a year and the South Korean won slipping 0.5%.
Market attention now shifts to India’s GDP growth figures for the July-September quarter, which are due for release later Friday. These data will provide further insight into the economic backdrop supporting currency and market movements.
Reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala
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