Rupee hits record low, registers steepest weekly decline in seven months

Rupee hits record low: The rupee plummeted to an all-time low against the US dollar on Friday driven by a combination of factors including a drop in the offshore Chinese yuan and heightened local demand for dollars towards the end of the trading session, according to traders.

Closing at 83.4250 against the US dollar, the rupee marked its lowest closing level on record, registering a 0.3 per cent decline from its previous close at 83.1475 on Thursday. Although marginally higher than the intraday record low of 83.43, the rupee posted its sharpest weekly fall in seven months, with a near 0.7 per cent decline for the week.

Traders cited several reasons behind the pressure on the rupee, including a lack of dollar inflows, a decrease in the offshore Chinese yuan, and overall dollar strength. Additionally, an observed "artificial dollar scarcity" in the market, reflected in the subdued overnight dollar-rupee swap rate, contributed to the rupee's losses, as noted by a foreign exchange trader at a foreign bank.

While the Reserve Bank of India (RBI) intervened by selling dollars earlier in the session around the 83.38-39 levels, its absence near the end of the session was noticeable, according to traders.

The dollar index, which measures the greenback against a basket of major currencies, recorded a 0.4 per cent increase, reaching 104.39 after hitting a monthly high earlier in the session. Asian currencies experienced a downward trend, with the Korean won leading losses by 1.2 per cent, and the offshore Chinese yuan dropping to its lowest level since November.

DBS Bank noted that the weakening yuan reflects growing concerns over geopolitical risks, which have resurfaced recently.

Looking ahead, Abhilash Koikkara, head of foreign exchange and rates at Nuvama Professional Clients Group, highlighted that the closing days of March will be critical for the rupee. He suggested that if the rupee continues to hover near record-low levels in the coming days, the bias on the unit is likely to turn negative.

(With Reuters inputs)