All eyes on RBI as fresh fall brings rupee closer to 90

The Indian rupee came within kissing distance of 90 to a dollar on Tuesday before likely central bank intervention rescued it from the brink, but not before it touched a new all-time low.

- Subhana Shaikh

The currency fell for the fifth straight day on steep demand from importers and foreign portfolio investors, shedding 42 paise to close at a record low of 89.87 against the dollar.

During the day, the rupee fell further to 89.9475; however, as it neared 90 to a dollar, state-owned banks stepped in to sell dollars and capped its fall, traders said, likely on behalf of the Reserve Bank of India (RBI).

Market participants believe the next phase of the currency’s trajectory will be determined by a complex mix of global carry trade, India’s external balance and the central bank's approach to defending the rupee. Experts believe the rupee will move in a range of 89.70 to 90.00 against the dollar on Wednesday, as the market keeps eyes peeled for the central bank to step in.

“With the traditional suppliers of global carry-trade capital—primarily the US and Japan—now grappling with elevated interest rates, the flow of low-cost capital into emerging markets has weakened noticeably," Rama Chandra Reddy, treasury deputy general manager at Karur Vysya Bank said. This environment not only limits fresh carry-trade inflows into India but also raises the risk of unwinding existing positions, adding incremental pressure on the rupee, he said.