Indian Rupee Plummets to New Lows: What's Behind the Slide?

Indian Rupee Hits Record Low

The Indian rupee is expected to open lower on Monday, due to weak market sentiment and uneven trade flows. This follows two consecutive days of record lows, with the currency dropping to 90.55 per US dollar on Friday.

Key Factors Contributing to the Decline

The rupee's decline can be attributed to several factors, including:

• Lack of a US trade deal, which has impacted market confidence
• Weak capital flows, at a time when the trade deficit is widening
• Depreciation bias, encouraging importers to increase hedging, while exporters are reluctant to sell dollars

A Mumbai-based currency trader noted that the daily flow has become skewed, with exporter offers being thin and spaced out, while buying interest remains high.

Reserve Bank of India's Response

The Reserve Bank of India has intervened in the market to slow the rupee's decline, but its support has appeared less forceful since the currency weakened past the 88.80 level.

Market Outlook

The rupee's performance on Monday will be influenced by the poor risk sentiment in the market, with Asian equities following the decline in US peers on Friday. The Bank of Japan, Bank of England, and European Central Bank are all set to meet this week, with potential rate changes expected to impact the market.

Additionally, a slate of US economic data, including the November jobs report and consumer price index, is due to be released this week, which may further impact the rupee's value.

Key Indicators

The following key indicators will be closely watched:

• Dollar index: down at 98.32
• Brent crude futures: up 0.5% at $61.4 per barrel
• Ten-year US note yield: at 4.18%
• Foreign investor activity: net sales of $204.9 million in Indian shares and $15.5 million in Indian bonds on December 11

The Indian rupee's slide is a significant concern for the Indian economy, and its performance will be closely monitored in the coming weeks.