Rupee hits all-time low as foreign fund outflows and inflation weigh on markets

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The rupee continued its downward slide, falling 1 paisa to an all-time low of 84.40 against the US dollar in early trading on Wednesday, as ongoing foreign fund outflows and a subdued trend in domestic equities pressured the currency, according to PTI. Forex market analysts noted that the rupee's movement has been highly volatile, with persistent global economic pressures further weakening it. This latest dip has brought the rupee closer to record low levels against the dollar, primarily impacted by the Dollar Index's continued strength.

As per the interbank foreign exchange data, the rupee opened at 84.40 against the dollar, marking a marginal decrease of 1 paisa from the previous day's record low close of 84.39. Forex experts, such as CR Forex Advisors Managing Director Amit Pabari, mentioned that while the rupee is displaying signs of stabilising near the current levels, it faces depreciation resistance around 84.50. According to Pabari, the Reserve Bank of India (RBI) has been intervening to limit the rupee's depreciation, reportedly selling dollars to cushion against sharper declines.

India's forex reserves have decreased for the fifth consecutive week, attributed to the RBI's dollar sales aimed at stabilising the rupee. These reserves currently stand at USD 682 billion, down from a recent peak of USD 704 billion. This decline highlights the RBI's efforts to curb the rupee's slide against the backdrop of global dollar strength.

In global markets, the dollar index, which measures the US dollar's value against a basket of six major currencies, was slightly down by 0.04 per cent at 105.98. On the commodities front, Brent crude oil showed a minor increase, trading at USD 72.07 per barrel in futures trade.

On the domestic stock market scene, both the BSE Sensex and NSE Nifty saw declines in early trading. The Sensex was down by 210.66 points, or 0.27 per cent, standing at 78,464.52 points, while the Nifty fell by 100.45 points, or 0.42 per cent, to 23,783.00 points. Foreign Institutional Investors (FIIs) further weighed down domestic markets as they were net sellers, offloading shares worth Rs 3,024.31 crore on Tuesday, according to PTI.

Meanwhile, India's macroeconomic indicators have also pointed to challenges. Retail inflation breached the RBI's upper tolerance level, hitting a 14-month high of 6.21 per cent in October due to escalating food prices. In September, inflation was recorded at 5.49 per cent, compared to 4.87 per cent a year prior.

India's industrial production, as measured by the Index of Industrial Production (IIP), expanded by 3.1 per cent in September, showing recovery across mining, manufacturing, and power sectors. However, this figure was lower than the 6.4 per cent growth seen in September of the previous year, PTI noted.

As India grapples with external economic pressures and inflation concerns, market participants continue to monitor the rupee's movement closely, especially in light of RBI's interventions and the prevailing global financial climate.

(With inputs from PTI)