The Indian rupee hit a new all-time low on Tuesday, driven by the US dollar's surge against major currencies and concerns about India's decelerating growth rate. The rupee fell to a record low of 23.0905 against the UAE dirham (84.7425 against the dollar), surpassing its previous lifetime low of 23.0803 against the UAE dirham (84.7050 against the US dollar) set on Monday. Most of its Asian counterparts also weakened, with the offshore Chinese yuan reaching its lowest point in a year, while the dollar index climbed to 106.50 due to the euro's weakness.
A currency trader at a bank noted that the rupee's decline from 84.50 to its current level "has occurred without significant resistance, relatively speaking." The trader added, "The market dynamics suggest that either the Reserve Bank of India's (RBI) intervention has been relatively subdued or that the underlying demand for dollars is too strong. Either scenario is concerning for the rupee."
On Monday, the rupee dropped by 0.25 percent following India's disappointing GDP data, marking its largest percentage decline in six months. Despite the RBI's persistent efforts over the past several months to support the currency at critical levels, the extent of the rupee's decline, though in line with its Asian peers, came as a surprise to bankers and corporates.
Dhiraj Nim, an FX strategist and economist at ANZ, warned in a note that India's weak GDP growth is likely to further dampen portfolio investor sentiment. He highlighted that the country's "subpar macroeconomic setup" combined with the recent drop in the RBI's foreign exchange reserves strongly indicates that a "weakening trend for the rupee seems unavoidable." India's foreign exchange reserves have now declined for eight consecutive weeks, reaching their lowest point in five months.
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