Rupee hits record low amid dollar demand and market pressure

Mumbai: The Indian rupee retreated to a historic low on Monday, defying a broader weakness in the Dollar Index, as demand from oil companies and importers seeking a currency hedge boosted the greenback relative to the local unit. The rupee fell to 87.65/$1, having started the day on a stronger note, opening 32 paise higher at 87.22 per dollar, LSEG data showed. The local currency traded in the range of 87.22/$1 and 87.70/$1.

The dollar index was at 98.9 on Monday, versus 100 on Friday, LSEG data showed.

Central bank intervention was more calibrated and muted, traders said.


"There was dollar demand from oil companies and importers. Foreign investors appeared to be selling from Indian equities too, adding pressure on the rupee. After opening stronger, the currency has continuously depreciated during the day," said Dilip Parmar, currency research analyst at HDFC Securities.

The rise in liquidity surplus pushed the overnight rates with TREPS rate falling below the standing deposit facility (SDF) rate at 5.22%.

The rupee is expected to remain under pressure during the week amid tariff uncertainty, equity outflows and the central bank's rate decision on Wednesday with the currency expected to trade in the range of 87.25/$1 to 88/$1, traders said.

Yields Soften
Yields on the 10-year benchmark government security softened five basis points, to close at 6.31% on Monday, CCIL data showed. This was the steepest daily decline seen in 12 weeks, according to LSEG data, amid increasing odds of another cut in the repo rate by the Reserve Bank of India (RBI) on August 6.

"Given that monetary policy is forward looking, it will be looking at data relating to the 6-12 months outlook rather than current numbers. Monetary policy, being data driven and more on the outlook, will be guided by the revised numbers, if any, and take a call," Governor Sanjay Malhotra said on July 25.

"Yields did harden after the governor's statement. However, after recent reports, especially by a large public sector bank, called for a repo rate cut, we are back to the levels before the governor's statements," said a bond trader from a primary dealership.