Rupee losses continue on trade deadlock, portfolio outflows

The rupee breached the 90-per-dollar mark on Monday to hit a record low for the third straight session on concerns of a prolonged stalemate in US-India trade talks and continued portfolio outflows.

The rupee touched 90.7850, extending its year-to-date decline to nearly 6%, slightly higher at 90.73 compared with 90.4150 in the previous session.

The Reserve Bank of India was likely to intervene to stem the rupee’s decline, traders said, adding that the currency’s gradual depreciation is likely to continue in the absence of a trade deal with the United States.

“Let’s see what happens in the next few months,” India’s commerce secretary said on Monday, referring to ongoing talks. “There is a reasonable expectation that the two countries will agree to a deal to reduce reciprocal tariffs,” he said.

India’s merchandise exports to the US, the country’s largest export market, rose more than 21% year-on-year in November, data released on Monday showed.

This helped reduce the country’s trade deficit to a five-month low of $24.53 billion last month. The improved data provided only temporary relief to the currency given continued demand for corporate hedging and possible portfolio outflows, traders said.

Foreign investors have sold more than $18 billion in net domestic stocks so far this year, the worst annual outflow on record.

The rupee has not benefited from a broadly weaker dollar due to negatively skewed dollar flows and trade impasse, which is on track to end the year down more than 9% against a basket of major currencies.

Attention now turns to RBI’s 3-year dollar-rupee buy/sell swap auction. Bankers expect the swaps to be fully subscribed but say corporate interest could be muted due to elevated hedging costs.