The Indian rupee fell to a record low of 87.487 against the dollar before recovering slightly to 87.465, marking a 40 paisa decline from its previous close.
The decline was driven by market anticipation that the Reserve Bank of India (NSE: BOI) (RBI) might slash interest rates on February 7, according to traders. The rupee’s sharp fall triggered widespread stop losses, further exacerbating the currency’s weakness.
The Indian currency had ended the previous day at 87.07/$1. Wednesday’s performance placed the rupee as the weakest among its Asian counterparts, despite a softer dollar index, which stood at 107.6. The rupee’s slide to near 87.50 levels sparked panic buying among importers, contributing to the downward pressure.
Anil Bhansali, head of treasury at Finrex Treasury Advisors, noted that foreign banks were significant dollar buyers during the day’s trading. The rupee’s breach of the 87.30/$1 threshold activated stop losses, a pre-set mechanism to sell assets when they hit a certain price to prevent further losses. Bhansali also mentioned that the rupee’s current level reflects a correction in terms of the real effective exchange rate (REER), bringing it closer to 105 levels.
Amidst these currency fluctuations, the banking system’s deficit was reported at Rs 38,215 crore. Meanwhile, yields on the 10-year benchmark government bonds stood at 6.66%, as shown by CCIL data. The RBI’s intervention in the currency market was described as muted, with most of the rupee’s depreciation occurring in the latter half of the day.
Looking ahead, the RBI has scheduled a 56-day variable rate repo (VRR) auction for February 7, aligning with the central bank’s monetary policy committee meeting to decide on the repo rate. This auction, involving a notified amount of Rs 50,000 crore, is set to be reversed on April 4.
