Rupee reaches new low, approaching the 86 mark

Mumbai: The rupee declined to 85.9325 against the dollar in the morning, before closing at 85.8475, little changed from the previous day.

The rupee hit a record low on Thursday as the dollar strengthened, driven by expectations of slower rate cuts by the US Federal Reserve and uncertainty over President-elect Donald Trump’s policies.

The falling equity markets added to the pressure, with the rupee nearing the sensitive 86 mark—just 7 paise short—before closing at 85.847 to the dollar.

The rupee declined to 85.9325 against the dollar in the morning, before closing at 85.8475, little changed from the previous day.

Traders said the already battered rupee was under pressure throughout  the day but state-run banks sold dollars heavily, most likely on behalf of the Reserve Bank, helping limit the  losses.

While the RBI has been routinely stepping in to support the currency since October when the rupee began to feel the barrage, sinking from 83.70 to 85.93 since then, many believe that the RBI should leave the rupee to find its feet on its own as the central bank’s rupee defence has only depleted its reserves by around $70 billion in the past three months alone and that it can’t afford to be selling more dollars as that will have more macro implications. 

"The RBI’s policy of tightly managing the rupee has run its course. The rupee’s overvaluation is impinging on exports and obstructing the government’s objective of strengthening the manufacturing sector," ANZ Bank said in a note earlier in the day. And there are many similar voices from the domestic soil as well. 

The dollar index was up 0.1% at 109.2, hovering just below its highest level in over two years hit last week, while most Asian currencies declined.

Another pain point for the rupee was the sharp selloff in the world's biggest government bond markets— the US and China — and a continued rise in the greenback sent shockwaves through financial markets.

A report that Trump who assumes office on January 20, is contemplating emergency measures to allow for a new tariff programme helped boost the dollar on Wednesday. 

The continuing blood bath on the Dalal Street — both the benchmarks shed over 60 bps from the previous days close— only added salt to the wounds of the already deeply bleeding rupee.