The rupee weakens past the 89/$1 level for the first time as the RBI stops intervention

Mumbai: The rupee hit its weakest level ever, falling past the psychologically significant 89 per dollar mark for the first time on Friday before closing at 89.49. The rupee weakened nearly 80 paise from its previous close and recorded an intraday low of 89.59 on Friday, LSEG data showed.Among the factors cited by traders were a lack of central bank intervention, delays in a trade deal with the US, a short squeeze on the currency and a high trade deficit. The rupee has been among the weakest performers among major Asian currencies this year, down 4.5% since the start of the year.

The fall, which occurred in the last hour of trading, was sudden and unexpected as the Reserve Bank of India had been selling dollars since late September, shielding the rupee from depreciating beyond the 88.80 per dollar mark to 88.81.

“The rupee was at around 88.75 levels around 2:30 pm when we saw heavy bidding against the currency,” said Kunal Sodhani, head of finance at Shinhan Bank India. “This took the rupee to 88.81, where we expected the RBI to intervene, but when that intervention did not materialise, there was a snowball effect.”

The sharp movement of the rupee caused panic among importers who took cover.

“The level went from 88.82 straight to 89.30 within a few minutes,” said Anil Bhansali, head of finance at Finrex Treasury Advisors. “The whole market had its stop-loss between 88.82 and 89.15 – they all triggered. This was not expected as we expected the trade deal with the US to be done on Thursday.” The outflow of foreign portfolios from both equities and debt has increased the depreciation. Foreign portfolio investors (FPIs) have raised more than $7.5 billion from both equities and debt so far this year, NSDL data shows. A record high trade deficit of $41.7 billion in October, down from $32.2 billion in September, added to the pressure.

“The trade deficit figure released this week added pressure and paved the way for depreciation. The 88.95 level was a surprise for the first time and in the absence of RBI intervention, the decline was rapid,” said Sajal Gupta, head of forex and commodities at Nuvama. “We’ve seen this before too, where the RBI one day lets go of the level it has been protecting. It just so happened that that day was today.”