The rupee came within a whisker of breaching the 79 mark against the dollar on Wednesday before closing at a fresh all-time low of 78.9650 due to persistent demand for the greenback from FIIs and oil marketing companies.

The Indian unit (INR) did not breach the 79 mark as the central bank likely intervened in the market by selling dollars (USD) through banks.

Opening eight paise weaker at 78.85, which was also the intra-day high, the rupee tested an intra-day low of 78.98 per dollar. It closed about 19 paise weaker over the previous close of 78.77.

FPIs are net sellers

Amit Pabari, MD, CR Forex Advisors, observed that in the last six months, FPIs have been net sellers in the Indian financial markets, selling equity and debt investment of about $30 billion.

“Our trade deficit is $23-$24 billion every month and we have to contend with rising crude oil price.

“Given these factors, RBI can only lessen the pace of currency depreciation. They have done a good job intervening in the market. Otherwise, USDINR would have been at 80.50 by now,” he said.

Pabari noted that the RBI is probably allowing the rupee to depreciate in line with other peers and fundamentals.

One of the reasons for the decline in India’s forex reserves is that RBI has been selling dollars to defend the rupee, according to experts.

Since the beginning of the current calendar year (2022), the reserves declined by $13.345 billion to stand at $590.588 billion as on June 17, 2022. 

Demand for dollars rises

Anindya Banerjee, VP, Kotak Securities, said the demand for dollars from carry traders in the offshore market and oil marketing companies in the onshore centers drove USD-INR higher, towards 79 levels.

“Bias remains upward. Over the near term, USD-INR can continue to trade with a positive bias driven by carry trade unwind and FPI outflows. Central bank intervention can be expected.”

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