Rupee Crosses 96 Against Dollar
Mumbai: The Indian rupee hit an all-time low of 96.96 per dollar on Wednesday as persistent dollar demand driven by geopolitical uncertainty and trade imbalances continued to put heavy pressure on the currency. RBI’s interventions and the government’s recent policy measures have provided limited relief; authorities reportedly took additional steps to stop the decline.
In the interbank foreign exchange market, the rupee opened at 96.36 against the dollar, closed the day at a high of 96.96 and a low of 96.71, and then closed the day at 96.82 per dollar, down 29 paise from the previous close of 96.61.
Vinay Rajani, Senior Technical Research Analyst at HDFC Securities Prime Research, said: “The rupee fell 29 paise against the dollar to close at 96.83, marking an all-time low, reaching today’s intraday low of 96.9650. The sharp weakness in the rupee is likely to reflect persistent FII outflows, rising crude prices and safe-haven demand for the dollar amid global risk-off sentiment.”
The rupee has lost more than 6 percent of its value since the start of the US-Iran war in late February, which has pushed crude oil prices to $108.76 per barrel. While the ever-rising rupee continues to add pressure on India’s already strained import bill and inflation outlook, rising energy import costs are also adding a new layer of pressure.
Meanwhile, the Reserve Bank of India announced during the day that it will hold a three-year dollar/rupee buy/sell swap auction worth $5 billion on May 26. The central bank said the swap followed a review of existing and evolving liquidity conditions and comes at a time when it continues to defend the rapidly weakening rupee by selling dollars from its foreign exchange reserves.
According to the statement, the swap is a “simple buy/sell currency swap” conducted by the Central Bank, where a bank will sell US dollars to the Central Bank and also agree to buy the same amount of US dollars at the end of the swap period.
The RBI has sold dollars at an estimated pace of $1 billion a day in recent sessions, according to Reuters. While managing foreign exchange reserves, the RBI also uses the clearing mechanism to provide rupee liquidity to the banking system. India’s banking system liquidity remains surplus but has fallen to 1.51 lakh crore rupees, about 0.6 per cent of deposits. The RBI will also announce its dividend to the government this week, which is expected to be higher than ₹3 lakh crore. This amount comes to the liquidity of the banking system in the form of public expenditures in a calibrated manner.
