Factors cited by traders include the absence of central bank intervention, delays in trade deals with the US, a short fall on the currency and a high number of trade deficits. The rupee has been the weakest performer among major Asian currencies this year, down 4.5% year-to-date.
The fall in the last hour of trade was sudden and unexpected as the Reserve Bank of India was selling dollars and saving the rupee from the 88.80 per dollar mark since late September at 88.81.
“The rupee was around the 88.75 level around 2:30 pm, when we saw heavy bids against the currency,” said Kunal Sodhani, Head of Treasury, Shinhan Bank India. “This took the rupee to 88.81, where we expected an intervention by the RBI, but when that intervention did not come, the snowball effect took place.”
The sharp movement in the rupee caused panic among importers who rushed for cover.
According to Anil Bhansali, head of treasury at Finrex Treasury Advisors, “The level went straight to 89.30 from 88.82 in a matter of minutes.” “The overall market had stop losses between 88.82 and 89.15–they were all triggered. This was unexpected as we expected a trade deal with the US on Thursday.”
The rupee has been under constant pressure since the US sanctioned India with 50% tariffs in late August. Foreign portfolio outflows from both equity and debt have added to the depreciation. NSDL data shows that Foreign Portfolio Investors (FPIs) have withdrawn over $7.5 billion from both equity and debt in the year so far. A record high trade deficit of $41.7 billion in October, against $32.2 billion in September, added to the pressure.
Sejal Gupta, Head of Forex and Commodities at Nuwama, said, “The trade deficit figures released this week added to the pressure and set the stage for depreciation. The 88.95 level for the first time was surprising, and with no RBI intervention, the decline was rapid.” “We have seen this before, where the RBI one day lets go of the level it is protecting. That happened today.”
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