The rupee is hitting a new record low as FII outflows and demand for dollars increase

The rupee closed at a new low of 90.73 against the dollar on Monday as foreign institutional investors continued to reduce their exposure to Indian equities.The currency devalued 32 paise from Friday’s closing level of 90.41 after hitting an intraday low of 90.80, which is its all-time low.

The impasse over the India-US trade deal, despite talks ending on December 12, is keeping foreign investors in selling mode, forex dealers said. This was further exacerbated by strong demand for dollars from importers.

“Sentiment is very negative. Pressure on the rupee may continue as the market remains thin and we are approaching the end of the year with no inflows in sight,” said KN Dey, a senior forex consultant.

The market is now witnessing an outflow of dollars from both the equity and debt segments. A total of $2.778 billion was withdrawn by foreign portfolio investors in December alone, NSDL data shows. Total outflows in the calendar year to date were $10.329 billion.

“Despite the better-than-expected trade balance figure, the rupee failed to find support. This lack of resilience is mainly attributed to a significant supply-demand imbalance caused by high dollar demand from importers and continued capital outflows,” said Nandish Shah, vice president at HDFC Securities.

The rupee opened the day weaker at 90.53 and fell to an intraday record low of 90.80, positioning itself as the worst performer among Asian peers.

“If the rupee crosses this level, we could see a crossover of 91 to 92 against the dollar,” said another forex dealer, adding that the central bank is clearly letting the market determine the value of the rupee and has only intervened to control any excessive volatility.