Rupee hits new all-time low of 85.80 in mid-session amid rising US bond yields and FII outflows

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The Indian rupee suffered its steepest single-day decline in the last six months on Friday, sinking 53 paise to hit an all-time intraday low of 85.80 against the US dollar. This sharp depreciation is primarily attributed to the relentless rise in US bond yields, which has intensified the greenback's appeal in the global market.

Despite positive movement in domestic equity markets, the rupee's fall was largely due to the heavy selling by foreign institutional investors (FIIs). The decline in the valuation of equities in other Asian markets made Indian stocks appear less attractive, prompting a substantial exit of FIIs from Indian equities. This capital outflow further exacerbated the downward pressure on the rupee, according to analysts.

Additionally, the rising price of crude oil has had a negative impact on the rupee, further contributing to its plunge. The rupee opened weak at 85.31 against the US dollar and continued to slide, eventually reaching its lowest-ever level of 85.80 during the mid-session. This marked the rupee's most significant single-day fall since March 22, when it closed 48 paise lower. By the end of the day, the rupee had stabilised slightly but remained down by 42 paise at 85.69.

As per PTI, the previous sharpest single-day decline of 68 paise had been recorded on February 2, 2023. On Thursday, the rupee had already weakened by 12 paise to 85.27, continuing a downward trend from previous sessions.

Market experts point to the Reserve Bank of India's (RBI) decisions surrounding its forward contracts as a key factor. According to analysts, the RBI holds approximately USD 21 billion in short-side forward contracts set to mature in December and January. Speculation suggests that the RBI has opted not to roll over these maturing contracts, resulting in a scarcity of dollars in the market and an oversupply of rupees. This imbalance has intensified upward pressure on the USD-INR pair, pushing it towards the 85.80 mark.

Further adding to the rupee's struggles is the broader global context, with the dollar index - which measures the greenback's strength against a basket of six major currencies - trading higher by 0.08% at 107.98. This uptick was driven by soaring US Treasury yields, with the 10-year bond hovering around 4.50%. Additionally, Brent crude, the global oil benchmark, saw a marginal rise of 0.07% to USD 73.31 per barrel in futures trade.

On the domestic front, the Sensex, the 30-share benchmark index, was trading higher by 319.93 points, or 0.41%, at 78,792.41 points, while the Nifty rose by 89.60 points, or 0.38%, at 23,839.80 points. However, as per PTI, the outflow of foreign capital remained a significant concern, with FIIs being net sellers in the Indian capital markets on Thursday. They offloaded shares worth Rs 2,376.67 crore, according to exchange data.

The rupee's steep depreciation and the broader economic indicators reflect a period of turbulence for the Indian currency, with external factors like global bond yields and crude oil prices playing a key role in shaping its movement. PTI reports suggest that this trend could persist unless significant corrective actions are taken.

(With inputs from PTI)