Rupee hits historic low of 86.62 against US dollar

Mumbai: The rupee on Monday declined by 58 paise to trade at a historic low of 86.62 (provisional) against the US dollar due to a strong American currency and rising crude oil prices.

At the interbank forex, the rupee opened at 86.12, gained 1 paise to 86.11 intraday and ended the session at its lowest of 86.62 (provisional), falling a massive 58 paise against the greenback.

The fall of 58 paise or 0.67 per cent in a session was the biggest fall since February 6, 2023, when the unit had fallen by 68 paise. The Indian currency witnessed its deepest fall of more than Re 1 in the last two weeks from the closing level of 85.52 on December 30.

On December 19, 2024, the rupee crossed the level of 85 per dollar for the first time.

On Friday, the local currency fell 18 paise to close at 86.04 against the US dollar, a day after registering a marginal gain of 5 paise. In the last consecutive sessions, it had fallen by 6 paise and 17 paise on Tuesday and Wednesday respectively.

The reason for this unprecedented fall was the continued pursuit of the US dollar by investors, which led to massive outflow of foreign capital from Indian equities. Foreign institutional investors (FIIs) sold equities worth Rs 2,254.68 crore on Friday. According to exchange data, foreign investors have pulled out Rs 22,194 crore from Indian equities so far this month.

According to analysts, the Reserve Bank of India has allowed the rupee’s exchange rate to fall against the US dollar amid declining foreign exchange reserves and decline in emerging market currencies.

“RBI will allow weakness as demand is increasing and supply is decreasing,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP. The Reserve Bank of India said on Friday that the country’s foreign exchange reserves declined by $ 5.693 billion to $ 634.585 billion in the week ending January 3.

At the same time, the dollar strengthened on better-than-expected employment growth in the US market, which also pushed benchmark Treasury yields higher amid expectations of a slow interest rate cut by the Federal Reserve, analysts said.

Furthermore, the US has imposed more sanctions on Russia, causing Brent oil to rise to $81 per barrel. This comes at a time when investors are already cautious in anticipation of restrictive trade measures by the new administration under President Donald Trump.

Anuj Choudhary, Research Analyst, Mirae Asset Sharekhan said that the rupee has reached new low due to strong dollar and weak global markets. FIIs remained net sellers, while crude oil prices rose nearly 2 per cent.

Going forward, rising crude oil prices and risk aversion in global markets could weigh on the rupee, Chaudhary said. “USD-INR spot price is expected to range between Rs 86.25 to Rs 86.80,” he said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was up 0.29 percent to trade at a two-year high of 109.80. 10-year US bond yields rose 0.48 per cent to October 2023 level at 4.79 per cent.

Global oil benchmark Brent crude rose 1.12 percent to $80.65 a barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex fell 1,048.90 points or 1.36 per cent to 76,330.01, while the Nifty fell 345.55 points or 1.47 per cent to 23,085.95.

On the domestic macroeconomic front, retail inflation eased to 5.22 per cent in December from 5.5 per cent in November, 2024.

Industrial production (IIP) growth rate reached a six-month high of 5.2 per cent year-on-year in November 2024 due to surge in festive demand and a pick-up in the manufacturing sector. PTI