Rupee slips to record low of 90.30/Dollar as India-US trade deal stays in limbo

Only a India-US trade deal is likely to provide near-term respite to the rupee-dollar exchange rate, Barclays says amid warnings of a further slide to 90.50.

The Indian Rupee weakened past the psychologically crucial 90 per US Dollar mark, as delays over a India-US trade deal weighed on sentiment.

The rupee has declined 4.9% so far this year, making it Asia’s worst-performing currency. (Reuters)

The rupee weakened to a low of 90.30 per US dollar on Wednesday, eclipsing its previous all-time low of 89.94 hit on Tuesday. The lack of forceful intervention by the Reserve Bank of India (RBI) and persistent foreign outflows contributed to the loss, according to analysts.

“Exporters are not selling dollars aggressively since the rupee is depreciating, while the dollar demand from importers remains high,” Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services, told Bloomberg News.

The rupee has declined 4.9% so far this year, making it Asia’s worst-performing currency. (Bloomberg/HT)

Only a India-US trade deal is likely to provide near-term respite to the rupee, according to Barclays. For now, with the key 90 mark breached, the currency could slip further to 90.30 in the coming days, HDFC Securities said.

What can RBI do to arrest rupee fall?

According to Kotak Securities Ltd., the RBI will need to step in more decisively to curb speculative pressures on the currency.

“If they allow the rupee to close above 90, we could see further speculative bets and the possibility of the rupee heading to 91,” Anindya Banerjee, a currency analyst at Kotak Securities, told Bloomberg News. The recent slide is “hard to justify on a fundamental basis”, he said.

A muted intervention by the RBI has contributed to the swift depreciation of the rupee vs the dollar, according to Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities.

“With the RBI monetary policy due Friday, markets expect clarity on whether the central bank will step in to stabilise the currency,” he said. “Technically, the rupee is deeply oversold, and a move back above 89.80 is essential for any meaningful recovery.”

Rupee and India-US trade deal

The rupee has declined 4.9% so far this year, making it Asia’s worst-performing currency, despite official data showing India’s economy expanded at its fastest pace in six quarters in July-September.

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. Together, these pressures have played a role in widening the country’s current-account deficit in the September quarter.

This sustained weakness risks deterring foreign investors, who have pulled out $16 billion from India's stock market this year, and could stoke inflation in the fuel-importing nation.