Rupee Plunges to 87.2 Against Dollar: Biggest Drop in Three Weeks
The Indian rupee experienced a significant decline on Tuesday, falling by 51 paise to close at 87.2 per US dollar. This marks the rupee's most substantial single-day drop in the past three weeks, reflecting pressures from regional currency weaknesses, importer hedging activities, and persistent dollar demand.
Key Factors Influencing the Rupee's Decline
Several factors contributed to the rupee's downturn:
- Regional Currency Weakness: Broad weakness across Asian currencies created a challenging environment for the rupee.
- Importer Hedging: Increased hedging activities by importers added downward pressure on the domestic currency.
- Dollar Demand: Consistent demand for the US dollar further weakened the rupee's position.
- NDF Contract Expiry: Dollar demand linked to the expiry of non-deliverable forward (NDF) contracts limited any potential for rupee appreciation.
- Asian Market Sentiment: Overall weak sentiment in Asian markets exacerbated the rupee's decline.
Global Economic Pressures
The dollar index rebounded to 106.8 after previously hitting a two-month low, indicating a strengthening dollar globally. Renewed concerns over potential US tariffs, particularly following announcements regarding restrictions on Chinese investments and the confirmation of tariffs on Canada and Mexico, further dampened risk appetite and added to the rupee's volatility.
Analysts' Predictions and RBI Intervention
Analysts suggest that the rupee, which is still considered overvalued, may depreciate further, potentially reaching 89 per US dollar. The pace of this decline will heavily depend on interventions by the Reserve Bank of India (RBI) and the magnitude of foreign outflows. On Tuesday, net equity outflows from Foreign Institutional Investors (FIIs) reached Rs 3,529 crore, adding further pressure on the currency.
Crude Oil Prices and Market Outlook
Brent crude prices experienced a slight decrease of 0.1%, settling at $74.7 per barrel. Market participants are advised to remain cautious regarding the rupee's trajectory, particularly with month-end importer demand and futures contract expiries on the horizon. Currency markets will be closed on Wednesday for Mahashivratri.
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