The Indian rupee hit a record low of 86.6475 against the U.S. dollar on Tuesday before closing slightly higher at 86.63. This drop happened due to strong dollar demand caused by the maturing of contracts in the non-deliverable forwards (NDF) market.
However, the Reserve Bank of India (RBI) likely stepped in to control the rupee’s fall by selling dollars through state-run banks. Foreign banks also helped limit the decline with dollar sales.
The rupee faced heavy pressure on Monday, marking its steepest single-day fall in two years after a strong U.S. jobs report reduced expectations of interest rate cuts in the U.S. this year.
Since December 9, when Sanjay Malhotra became RBI governor, the rupee has fallen by 2.1%, leading some to believe the central bank is less active in supporting the currency.
The rupee’s future volatility indicator (1-month implied volatility) also hit a 16-month high of 4%. Despite global challenges, the RBI plans to carefully use its foreign exchange reserves to manage currency market swings.
Meanwhile, the dollar index cooled from its recent two-year high, which gave some relief to other Asian currencies.
Investors are now waiting for key U.S. inflation data, including wholesale and consumer price reports, due later this week.
