The rupee on Tuesday sank to a record closing low, weighed down by a strong dollar, rising geo-political tensions and sell-off by foreign portfolio investors.

The rupee closed nine paise weaker at 83.54 per dollar against the previous close of 83.45. The rupee breached its previous intra-day low of ₹83.49 hit on November 10, 2023.

The Indian currency tested an intra-day low of 83.55. However, the central bank reportedly intervened (via public sector banks selling dollar sales) in the market to prevent further depreciation.

Rahul Kalantri, Vice-President, Mehta Equities Ltd, said: “The dollar index showed very high volatility and extended its gains amid heightened tensions in the Middle East. The Japanese Yen also slipped to record lows and also supported the dollar index.”

The weakness in the rupee came amid a stable dollar index, escalating geopolitical tension and continuous selling from FIIs, he added.

Kalantri expects the rupee to remain volatile this week amid volatility in the dollar index and the USD-INR pair could trade in the range of 83.22- 84.05.

Morgan Stanley India Chief Economist Upasana Chachra and Economist Bani Gambhir said: “While we expect India’s domestic growth to remain robust and macro stability to remain benign, a higher terminal Fed Funds rates does expose the economy to some degree of external risks.

“Indeed, with stronger than expected US CPI data, market pricing for the Fed Funds rate reflects approximately two rate cuts in 2024 and the DXY (Dollar) index has gained approximately 4.5 per cent YTD (year-to-date).”

Against this backdrop, strength in the dollar could weigh on the currency and increase risks of imported inflation, warranting a cautious stance from the RBI, they added.

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