On Monday, the Indian rupee remained close to its historic low, influenced by the general weakness in most Asian currencies. Intervention by state-run banks through dollar sales helped the currency from further decline. By 9.40am IST, the rupee stood at 83.6525 versus the US dollar, almost level with its previous close of 83.6625. It had previously reached an all-time low of 83.6660 on June 20.
Most Asian currencies showed weakness, with the Thai baht falling by 0.5 percent, leading the losses, and the offshore Chinese yuan weakening beyond 7.29 following an unexpected cut in policy rates by China's central bank. A foreign exchange trader from a state-run bank commented that the rupee is unlikely to drop below 83.75, even if it hits a new all-time low.
Traders anticipate that the Reserve Bank of India will intervene to prevent a sharp decline in the rupee. The currency has been affected by persistent strong demand for dollars due to corporate payments. The dollar index edged slightly higher to 104.3, and US bond yields remained steady after President Joe Biden withdrew his re-election bid.
In a positive development, India's foreign exchange reserves surged by $9.7 billion to reach a record high of $666.85 billion in the week ending July 12. Amit Pabari, managing director at CR Forex, noted that this increase indicates the RBI's active efforts to prevent the rupee from strengthening despite significant inflows into the equity and debt markets.
Foreign investors have net purchased nearly $5 billion in local equities and debt so far in July. Market participants are now awaiting India's budget announcement on Tuesday, with particular attention on the government's fiscal deficit target and gross market borrowing estimates.
