The rupee is hitting record lows as outflows and trading limbo keep the bearish bias intact

The Indian rupee fell to a record low on Tuesday, widening losses due to the lack of a trade deal between India and the United States, which has hit trade inflows and portfolios.The currency traded at 89.9475 against the US dollar before closing at 89.87, down almost 0.4% on the day and its fifth consecutive daily decline. Soon after the local spot market closed, the rupee weakened to 90 per US dollar through the interbank order matching system before paring losses.

The South Asian currency has remained under pressure despite strong economic growth in India in the quarter to September, underscoring the pressure on the country’s external sector. Analysts expect the rupee to face more weakness, but say the Reserve Bank of India’s market interventions, like Tuesday’s, should help keep volatility in check.“Since the current weakness in the (INR) continues, we advise exporters to sell (USD) only on a cash/spot basis and hedge as little risk as possible,” said Anil Bhansali, head of finance at Finrex Treasury Advisors.

“Importers have been advised to buy all dips (on USD/INR),” he added. The fragmentation has also manifested in market activity, with importers rushing to pick up dollars while exporters hesitate, adding to pressure on the rupee.

In November, importers recorded forward hedges worth nearly $31 billion, up 11% compared to the average between 2020 and 2024, while export activity fell about 5% to around $21 billion compared to the same benchmark.

Dollar and rupee forward premiums also rose sharply on Tuesday, reflecting rising costs of hedging against rupee weakness as the currency approaches the 90 per US dollar mark. The one-month forward premium rose to over 19 paisa, the highest since May, while the one-year implied rate rose 7 basis points to 2.33%.

Elsewhere, global currency markets were largely subdued, with Asian currencies and the dollar index floating sideways as investors stuck to their bets that the US Federal Reserve would cut interest rates this month.