The Indian rupee closed at a record low of 89.5475 per US dollar on Monday, extending pressure on the currency as market forces and policy developments weighed in. Traders pointed to several clear drivers behind the fall.
What pushed the rupee lower?
- RBI’s maturing NDF positions: Settlements in the non-deliverable forward (NDF) market involving the central bank added near-term dollar demand, putting downward pressure on the rupee.
- Persistent FII selling: Ongoing outflows from foreign institutional investors in equities and debt have increased demand for dollars as funds move out of local assets.
- Delayed India–US trade deal: Uncertainty around progress in trade talks with the United States dented investor sentiment, reducing appetite for rupee assets.
Market impact and why it matters
A weaker rupee can make imports more expensive, adding to input costs for businesses and potentially lifting inflation. It also raises funding costs for firms with dollar-denominated liabilities and can weigh on investor confidence in the near term.
How policymakers might respond
The central bank has tools to smooth volatility, from direct market intervention to adjusting liquidity settings. Any response will seek to balance currency stability with broader macroeconomic goals like inflation and growth.
Short-term outlook
Expect continued sensitivity to FII flows, any fresh settlements in NDFs, and developments in the India–US trade discussions. Traders and businesses should brace for ongoing volatility while watching for signs of sustained foreign demand or central bank action that could stabilise the rupee.