US sanctions and delays in trade deals dragged the rupee to a new record low at 89.48. A decline of 4.6% this year, what now?

The Indian rupee hit a new low of 89.48 against the US dollar on Friday, pressured by US sanctions imposed on certain Indian companies linked to Iran’s oil trade. The rate fell by 87 paise to close at an all-time low of 89.55 (provisional) against the US dollar.The coin breached the previous low of 88.80, which was reached in late September and again earlier this month.

The near-term outlook for the rupee remains challenging amid a resurgent US dollar, with the DXY climbing back above 100. The dollar index has risen 0.9% over the past five sessions, extending its three-month gain to 2.5%.According to Anil Kumar Bhansali, head of the Ministry of Finance and executive director at Finrex Treasury Advisors LLP, Friday’s sharp drop in value was caused by a combination of factors. Apart from the impact of US sanctions, he pointed to a widening trade deficit, with Indian exports falling 11.8% to $34.38 billion in October, partly under pressure from higher US tariffs. At the same time, rising gold imports have further increased pressure on the trade gap, deepening the imbalance between imports and exports.

The delay in the India-US trade deal will have a negative impact on the INR, Bhansali said.

The rupee which has fallen 4.6% against the dollar could fall further, Anuj Gupta, director of Ya Wealth Global Research told ETMarkets. Diminishing expectations of the US Federal Reserve’s rate cut in December have boosted the US dollar, which has gained strength over the past three months. Gupta expects the rupee to test around 90 levels against the dollar in the near term. As for the dollar index, a likely rise to 102-103 cannot be ruled out, he added. Pressure on the rupee has continued since steep US tariffs on Indian exports came into effect in late August.

The INR is now among the weakest major Asian players this year as foreign investors have withdrawn $16.5 billion from Indian equities so far, a Reuters report said, adding that this has increased pressure on the rupee, which is already struggling with hedging interest from importers and muted activity from exporters. There was a sudden spike in volumes when 88.80 broke, said a trader at a private sector bank.

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