Rupee hits new low of 84.96 per dollar, US Fed meet outcome in focus

RBI sold dollars via state-run banks, which avoided further depreciation, said dealers

The rupee has depreciated further to close at a fresh low of 84.96 against the US dollar on Wednesday as foreign banks purchased dollars on behalf of their clients ahead of the outcome of the US Federal Reserve meeting, said dealers.

 

Forex traders said the dollar demand from importers, foreign banks, foreign fund outflows and a muted trend in domestic equities further dented investor sentiment.

 

The Reserve Bank of India sold dollars via state-run banks, which avoided further depreciation, dealers said.

 

The local currency had settled at 84.90 per dollar on Tuesday.

 

“There is pressure on the rupee due to the demand for dollars from foreign clients. However, the rupee is performing better than other currencies. The depreciation is gradual. Now it is expected to trade in a narrow range and 85 per dollar level will be protected,” said the treasury head at a state-owned bank.

 

 

“Now, it is the end of the calendar year and book closing time for the foreign banks, which will lead to gradual decline at least until January 15,” he added. 

 

Dealers maintained caution ahead of the US Federal Reserve meeting outcome scheduled on Wednesday after market hours. The market has factored in a 25 basis points rate cut by the US rate-setting panel. However, the guidance on the future rate trajectory will be in focus.

 

“We will have to wait for one more day as we have the rate decision tonight. The intervention strategy has not changed yet. Tomorrow (Thursday), it will be clear how much the RBI is willing to protect the 85 per dollar mark,” said the treasury head at another state-owned bank.

 

The rupee had breached 84 per dollar mark on October 11 of the current year.

 

The domestic currency took 475 days to breach the psychologically crucial level. RBI has allowed a gradual depreciation of the currency.

 

The central bank has always maintained that it intervenes in the foreign exchange market to curb undue volatility and does not target any range.

 

Some traders believed that the rupee might breach 85 per dollar mark if the US Federal Reserve remains hawkish in its commentary.

 

Foreign exchange dealers said that the RBI has been conducting mid-tenor Buy-Sell Swaps, effectively parking it forward for a tenure of approximately six months.

 

“The RBI is intervening in all three markets, and we are also hearing buy-sell swap of short tenures,” said a dealer at a state-owned bank. “But we will see 85 per dollar level soon, probably by the end of this month,” he added.

 

Meanwhile, the net liquidity in the banking system fell into deficit mode due to dollar sale by the RBI, said analysts.

 

The net liquidity deficit in the banking system stood at Rs 1.45 trillion on Tuesday, the highest in about six months, according to RBI data.

 

“The liquidity has dried up because of the advanced tax outflow and the RBI intervention,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. 

 

“The INR has stayed around 84.90 levels, and there has been RBI intervention,” she added.

 

The rupee depreciated by 1.99 per cent in the current calendar year. In the current month, it has witnessed depreciation of 0.48 per cent.