(Dec 3): India’s rupee slipped past the key psychological level of 90 per dollar on Wednesday, as delays in concluding a crucial trade deal with the US continue to dent sentiment.
The currency weakened as much as 0.5% to a fresh record low of 90.2950 per dollar. It pared some losses after the Reserve Bank of India (RBI) sold dollars in small amounts, according to people familiar with the transactions. The pessimism spilled over into the equity market, with the benchmark NSE Nifty 50 Index declining as much as 0.5%.
India is still among the few major economies yet to seal a trade pact with the US, though officials remain optimistic about wrapping one up soon. In the meantime, steep 50% tariffs on Indian goods have weighed on exporters, while strong imports have kept dollar demand high and added pressure on the rupee. These factors pushed India’s trade deficit to a record high and drove a significant widening of the current-account gap.
“Exporters are not selling dollars aggressively since the rupee is on a depreciating trend, while the dollar demand from importers remains high,” said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services.
Only a trade deal with Washington is likely to provide near-term respite for the rupee, according to Barclays strategists. For now, with the key 90 mark breached, the currency could slip further to 90.30 in the coming days, HDFC Securities warned.
Kotak Securities Ltd says the RBI will need to step in more decisively to curb speculative pressure on the currency. The rupee has fallen about 5% this year — the weakest performance in Asia — with this week’s slide coming despite official data on Friday showing that India’s economy expanded at its fastest pace in six quarters.
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“If they allow the rupee to close above 90, we could see further speculative bets and the possibility of the rupee heading to 91,” said Anindya Banerjee, currency analyst at Kotak Securities. The recent slide is “hard to justify on a fundamental basis,” he said.
The rupee’s sustained weakness may prompt the RBI to leave interest rates steady at its policy review on Friday, said Kunal Sodhani, head of treasury at Shinhan Bank in Mumbai.
Hopes of a rate cut had already faded after last week’s stronger-than-expected growth print. Before the GDP data, RBI governor Sanjay Malhotra had flagged the possibility of cutting rates, citing record-low inflation.
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