Mumbai: The rupee closed above the 84 per dollar mark for the first time on Friday, settling at 84.06, down 12 paise from Thursday’s close of 83.94. Opening at 83.98, the currency touched an intraday record low of 84.07.
The breach of the 84 level is significant as the RBI had defended this threshold for over two months. Friday’s intervention marked the central bank’s continuing efforts to prevent sharp volatility in the currency market.
Some dealers feel that RBI may have allowed the rupee to cross 84 for tactical reasons, anticipating more volatility in the coming days should the Iran-Israel conflict escalate. Allowing the rupee to weaken now will give RBI more room to intervene if there is volatility next week.
The rupee had strengthened to 83.50 just two weeks ago, buoyed by gains in equity markets. However, rising crude oil prices and continued foreign outflows from Indian equities have exerted downward pressure. Brent crude has surged from $69 per barrel in late September to $78.92 in October.
“There is a likelihood that the rupee will weaken further if the conflict between Israel and Iran escalates coupled with other geopolitical developments ,” said Hariprasad MP, Executive Director, EbixCash World Money Limited . “The weaker rupee will not have any adverse impact on leisure travelers as it coincides with the Durga Puja period, which typically sees a surge in travel. It is unlikely that this will affect travel demand, though some travelers may carry less forex.”
The continued strength of the dollar, driven by dimmed expectations of a 50 basis point rate cut from the U.S. Federal Reserve in November, has also contributed to the rupee’s weakness. However, with the RBI maintaining robust foreign exchange reserves, any significant depreciation is likely to be gradual and controlled, dealers said.
“There is a fear of an escalating Iran-Israel conflict. RBI has been mildly intervening at 83.98, later allowing the rupee to settle at 84.08. The RBI is unlikely to permit any unwanted volatility in the currency market. Additionally, there were significant outflows today due to oil payments. The rupee is expected to range between 83.50 and 84.25 until the end of December. Furthermore, the biggest IPO (Hyundai) is set to launch on 15th October which could result in some bulky inflows,” said KN Dey a forex consultant who advises corporates.
Foreign portfolio investors (FPIs) have been net sellers of Indian equities for the past nine trading sessions, offloading shares worth Rs 55,000 crore. Gold imports have also surged, driving the merchandise trade deficit to a 10-month high in August. The growing trade gap has further widened the current account deficit to 1.1% of GDP in the April-June period, adding more strain to the rupee.
While other Asian currencies have appreciated by around 5% over the past two months, the rupee has remained largely flat, reflecting the RBI’s active role in managing currency fluctuations. Support for the rupee is anticipated between 84.20 and 84.35, with resistance expected in the 83.70-83.80 range.
