The Indian rupee fell below 84 per dollar for the first time on Friday, pressured by concerns about the recent spike in oil prices and the exodus of foreign money from the equity market.
The rupee closed at 84.06, down 0.1 per cent on the day, after hitting a record low of 84.07 earlier in the session.
The decline past the 84 level is significant as the Reserve Bank of India (RBI) had defended that level for more than two months. On Monday, it informally instructed banks to avoid heavy bets against the rupee. The RBI intervened on Friday as well. Traders said large state-run banks sold dollars, likely to prevent a sharp fall in the rupee.
Going ahead, the currency could see some more pressure but the RBI may “only allow marginal depreciation to make sure the rupee acts as a stable currency”, VRC Reddy, treasury head at Karur Vysya Bank, said.
The rupee had strengthened to around 83.50 about two weeks ago, but its near-term outlook worsened as the Middle East conflict pushed up oil prices, foreigners sold Indian shares and hopes of another large US rate cut diminished.
Overseas investors have turned heavy sellers of Indian equities over the last nine sessions, while Brent crude oil futures have jumped 10 per cent so far in October. India meets a bulk of its crude oil needs through imports.
India’s shrinking balance of payments surplus amid a rise in merchandise trade deficit has also kept the rupee under pressure.
A pickup in gold imports alongside a slowdown in exports drove India’s merchandise trade deficit to a 10-month high in August. The trade gap also led to a widening in the country’s current account deficit to 1.1 per cent of GDP in April-June.
The worsened trade balance has contributed to the rupee’s underperformance.
Asian currencies have risen as much as 5 per cent over the last two months, while the rupee has been nearly flat against the dollar.