The Indian rupee fell to a record low for the third straight session on Monday, finding only fleeting relief from the central bank’s tightening of banks’ forex position caps, as the outlook for Asian currency remained weak amid the Middle East war.
The rupee weakened past the 95 per dollar mark for the first time to 95.21 per dollar, falling 0.3 per cent from the previous close.
The unit is on course to log its steepest fiscal year drop since 2011-12, as the Mideast war has raised risks for India’s inflation and growth outlook, adding to the strain from global trade frictions, geopolitical flare-ups and persistent capital outflows.
Worries over elevated oil prices have put the Indian stocks on course for their worst monthly drop since March 2020 and bonds on track for their worst fiscal year since 2023.
India’s fiscal year runs April through March.
While the rupee had opened sharply higher, its gave up gains as corporates entered arbitrage trades between the onshore spot market and non-deliverable forwards. The space for such trades was opened up by the central bank’s tightening of banks’ forex positions on Friday.
Analysts say that while the move to tighten FX position limits may help steady the currency in the near-term, a depreciation bias is likely to linger.
“The bottom line is that the RBI’s cap does not change the underlying dynamics that fuelled pressure on the currency,” Barclays analysts said in a Monday note.
“The INR remains particularly vulnerable to an oil supply shock, while India’s balance of payments position may deteriorate further, and capital and financial account pressures are increasing.”
