On Friday, the rupee hit an all-time low in the wake of the election dollar’s strengthening trend and also due to persistent foreign investors exiting local stocks and bonds.
The rupee which opened weaker traded at 84.4975 per dollar, slightly breaching the previously recorded 84.4925 lows of Thursday. As of 10.40 a.m. IST, it was at 84.49, nearly flat for the day.
The rupee was felt this month, over the ‘Trump’ victory measured dollar, and has also suffered considerable 3 over billion capital outflows from domestic equity and bond markets.
The president-election won the elections on November 8, and since then the dollar has appreciated more than three percent driven by inflation index expectations associated with Republican policies, and carrying a reduced risk of cuts in The Fed's rates next time.
During the week, dollar’s strength was seen to have eased for the earlier part of the week although it still strengthened on Wednesday due to reasons such as heightening geo-political tensions and comments from officials of the Federal reserve downgrading prospects of cuts.
There is also an appreciation of the dollar and depreciation of the rupee, with the rupee losing about 0.5% in the month of November although the frequent interventions by the Reserve Bank of India, including today, assisted in reducing the losses.
In comparison, other Asian currencies have fallen between 0.9 percent and 2.2 percent this month.
"A strong dollar continues to create a depreciating bias for currencies globally ... However, interventions by the RBI, supported by India's healthy foreign exchange reserves, should help keep rupee volatility in check," said Rajani Sinha, chief economist at CareEdge Ratings.
State-run banks were seen selling dollars on behalf of the RBI, with traders noting "particularly strong" offers around the 84.50 level.
At this point, "there is limited interest from interbank traders in selling dollars and very muted inflows, so the central bank will likely stay active to smoothen sharp moves," a senior trader at a state-run bank said.
While the RBI has stated that its goal is to maintain a "liquid, deep, and orderly" market, its interventions have resulted in the rupee being overvalued compared to the currencies of India's key trading partners.
According to RBI data, the rupee's 40-currency real effective exchange rate (REER), which measures its competitiveness, indicated an overvaluation of 7.21 percent as of the end of October.
