Mumbai: The Indian rupee fell to a record low on Wednesday, driven by strong demand for the dollar from importers and potential capital outflows from domestic equities, although the Reserve Bank of India's intervention helped limit further losses, according to traders.
The rupee briefly dropped to 84.9550 against the U.S. dollar before settling at 84.9525, a decline of 0.07%.
The rupee was also pressured by weakness in regional currencies ahead of the U.S. Federal Reserve's upcoming policy decision, as well as speculative dollar purchases amid a continued bearish sentiment towards the local currency. Indian stock markets, including the BSE Sensex and Nifty 50, ended the day down by approximately 0.6% each.
Concerns over India's economic growth outlook, coupled with the dollar's strength following Donald Trump's election win, have added to downward pressure on the rupee. The dollar index recently stood at 106.7, up more than 3% since November 5, the day after the U.S. election.
Despite these headwinds, the rupee has performed better than most of its regional counterparts since the election, largely due to the Reserve Bank of India's routine market interventions. The rupee has fallen 0.9% over the period, while other regional currencies have weakened by between 1.8% and 4.4%.
Traders believe the RBI likely sold dollars and conducted dollar-rupee buy/sell swaps on Wednesday to stabilize the currency. The central bank has recently used such swaps in addition to spot market interventions, likely to shield foreign exchange reserves and INR liquidity from the impact of dollar sales, according to market sources.
Meanwhile, global investors are closely monitoring any potential changes to the Federal Reserve's projections on rate cuts in 2025. The market is fully pricing in a 25 basis-point reduction in this week's meeting. As Societe Generale noted, expectations for the final Fed meeting of the year suggest a hawkish 25bp rate cut to a range of 4.25%-4.50%, with a possible pause in January and fewer rate cuts anticipated in 2025 and 2026.