The rupee continued its downward trend for the third straight day on Thursday, weighed down by a strong dollar and increased month-end dollar demand from importers. By the close of market hours, the rupee had weakened by 6 paise to 85.2625 against the dollar, compared to 85.20 in the previous session, touching an all-time intraday low of 85.2825.
A trader noted that importers were highly active in the market, even as trading volumes remained relatively low due to the approaching year-end. Notably, the rupee’s depreciation from 85 to 84 occurred over two months, while its slide from 84 to 83 took approximately 14 months.
Despite this decline, the real effective exchange rate (REER), which reflects the rupee’s value against a basket of foreign currencies adjusted for inflation, remained at a record high of 108.14 in November. This is largely because the rupee’s peer currencies have depreciated more sharply.
Since dropping below 84 in mid-October, the rupee has experienced a gradual decline, driven by factors such as an economic slowdown, significant foreign outflows exceeding $12 billion in a month, concerns over U.S. President-elect Donald Trump’s trade policies, and a hawkish stance from the Federal Reserve.
However, interventions by the Reserve Bank of India (RBI) have helped limit the rupee’s slide. In October alone, the RBI reportedly sold over $47 billion to defend the currency. According to the RBI’s December bulletin, the central bank net sold $9.28 billion in the spot forex market in October, with the net outstanding forward sale reaching $49.18 billion, compared to $14.58 billion in September.
During October, the RBI purchased $27.5 billion and sold $36.78 billion. In contrast, the central bank was a net buyer of $9.64 billion in the spot market in September. October was marked by heightened volatility for the rupee, beginning with foreign investors selling domestic equities en masse and further compounded by Donald Trump’s victory in the U.S. presidential election, which added additional pressure on the currency.
