On a day when domestic equities surged and crude oil prices declined amid hopes of de-escalation in the West Asia conflict, the rupee slipped to a fresh low. Dealers attributed this to dollar demand linked to maturing non-deliverable forwards (NDFs) and month-end buying. 

On Wednesday, the rupee settled at a new closing low of 93.98 per dollar against the previous close of 93.87. 

Market participants said the Reserve Bank of India (RBI) intervened in the foreign exchange market through dollar sales, preventing the rupee’s slide beyond 94 per dollar. 

“Risk sentiment has improved slightly because of reports of talks between the US and Iran, though uncertainty persists. There was month-end dollar buying from importers and traders,” said a dealer at a state-owned bank. “Some positions maturing in NDFs put pressure on the rupee. The RBI intervened at 93.98 per dollar. Strong resistance is seen at 94.” 

The outstanding net short dollar position in the rupee forward market rose to $67.77 billion by the end of January, from $62.35 billion at the end of December. 

Short positions in maturities of less than one year fell by around $3 billion, while those in longer tenures rose by about $9 billion.

After hitting a fresh high of $728.5 billion for the week ended February 27, India’s foreign exchange reserves fell by around $20 billion over the next two weeks to $709.8 billion for the week ended March 13.

Foreign exchange import cover is tracking at 9.2 months, taking into account the forward book, as of March, according to a note by IDFC First Bank. The estimate assumes a further decline in reserves to $696 billion by March-end and the forward book’s dollar deficit widening to $80 billion.

“Markets were in risk-on mode, but the rupee was still being sold against the dollar, with month-end demand keeping bids high despite stock markets rising and the dollar index easing. Most risk assets gained against the dollar as markets expected some agreement between the warring sides — the US-Israel bloc and Iran,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

The rupee is heading for its worst year in more than a decade, having depreciated 9.05 per cent against the dollar in the current financial year. In March alone, it has weakened by 3.19 per cent so far.