The rupee breached the 95-per-dollar mark in intra-day trade on Monday, highlighting heightened volatility as rising tensions in West Asia spooked global markets and kept foreign investors on the sidelines despite policy intervention by the RBI.
The currency opened stronger at 93.62 against the US dollar and briefly extended gains to 93.57 — up 128 paise from the previous close — after the Reserve Bank of India imposed a surprise cap on banks’ net open foreign exchange positions. The central bank has shifted to an absolute limit of $100 million from the earlier threshold of 25 per cent of capital, aiming to curb speculative pressures.
However, the early rally proved short-lived. The rupee slipped to an all-time intra-day low of 95.22 before recovering marginally to 94.70, against the previous close of 94.85.
Forex dealers attributed the reversal to corporate activity exploiting arbitrage opportunities between onshore and non-deliverable forward markets, alongside persistent dollar demand from importers hedging near-term liabilities.
Worst fall in a decade
The rupee has declined about 11 per cent in the current fiscal, marking its steepest annual fall since 2011-12. The currency has remained under pressure over the past year amid persistent foreign portfolio outflows, with overseas investors selling over $19 billion worth of Indian equities, including record outflows in March.
Analysts said the depreciation reflects a combination of elevated crude oil prices, strong dollar demand, and heightened global risk aversion. As a major crude importer, India faces widening current account pressures when oil prices rise, exacerbating currency weakness. While the RBI’s latest measures may provide near-term stability, they are unlikely to offset underlying macroeconomic pressures, particularly those linked to oil and capital flows.
“At the core of this weakness is the global backdrop. Hopes of de-escalation between the US and Iran faded, bringing back risk aversion. And when uncertainty rises, markets shift towards safer assets, strengthening the dollar and weakening emerging market currencies like the rupee,” CR Forex Advisors MD Amit Pabari said.
“The rupee breaching ₹95 is the market’s verdict on a confluence of forces building for months, Brent crude above $105, FPI outflows exceeding $11 billion in March, and a widening current account deficit. This is not a one-session event,” said Sachin Sawrikar, founder and managing partner, Artha Bharat Investment Managers.
Mixed impact
Finance minister Nirmala Sitharaman on Monday said the country’s economic fundamentals are strong, and compared with other emerging market economies, the rupee is “absolutely going fine” against the US dollar.
Minister of state for finance Pankaj Chaudhary said the impact of the rupee’s depreciation on the economy will be mixed, with the import bill expected to be higher while export competitiveness may improve.