The rupee's fate hangs in the balance as India's currency teeters on the brink of a record low. But here's where it gets controversial: a potential savior emerges in the form of central bank intervention.
In Mumbai, the rupee's value was anchored near its lowest point on Tuesday, a victim of waning risk appetite amidst renewed trade tensions between the U.S. and China. The local currency closed at 88.7975 against the U.S. dollar, a mere 0.14% decline from the previous day, yet perilously close to its all-time low of 88.80.
Traders reported persistent dollar sales by state-run banks, most likely acting on behalf of the Reserve Bank of India, mirroring intervention strategies seen in recent weeks. A large private bank was also observed offering dollars near the critical 88.80 mark, while foreign banks dominated the bids.
The rupee's struggles are not isolated; Asian currencies, such as the Korean won and Thai baht, also weakened. Global equities followed suit, with India's Nifty 50 index down 0.3%, outperforming the MSCI's Asian shares index, which fell 1%. Safe-haven currencies, like the Japanese yen and Swiss franc, gained ground on Tuesday.
The rupee's headwinds are exacerbated by global weak risk appetite, steep U.S. tariffs, tighter immigration policies, and a precious metals rally. ING analysts predict India will secure a lower tariff rate, benefiting the rupee over the next few months, but prevailing uncertainty may dampen investor sentiment in the short term.
HSBC analysts expect the rupee to recover once U.S.-India trade negotiations bear fruit, but limited visibility on this front has led them to adjust their year-end forecast to 87.50, weaker than their earlier projection of 87.
So, will central bank intervention be enough to avert a record low for the rupee? And what does this mean for India's economic outlook? These are questions that remain open for discussion and debate.
