Rupee hits all-time low; RBI intervenes to curb further losses

Rupee plunged to an all-time low on Thursday, falling to 84.88 against the US dollar amidst heightened demand in the non-deliverable forwards (NDF) market and ongoing depreciation pressures.

However, the Reserve Bank of India (RBI) stepped in with targeted interventions, helping to cap the currency's losses. The rupee closed at 84.8575, slightly down on the day.

Dollar demand and market uncertainty weigh on the rupee

The weakening of the rupee comes amid a strong demand for the US dollar, despite little change in the dollar index, which stood at 106.5. Market participants remain cautious as the Federal Reserve's potential December rate cut looms large, after recent US data showed consumer prices rose in line with expectations. Despite this, US bond yields saw gains on Thursday, adding to the global market's volatility.

DBS Bank highlighted that uncertainties surrounding the incoming Trump administration and the resilient US economy suggest that both term premiums and real yields are likely to remain elevated in the near term, contributing to the pressure on the rupee.

RBI's intervention stabilizes dollar-rupee forward premiums

The RBI's active involvement in the foreign exchange markets helped stabilize the rupee to some extent. The central bank's USD/INR buy-sell swaps, conducted later in the session, prevented further escalation of dollar-rupee forward premiums. While the one-year implied yield spiked by 7 basis points to 2.24 per cent at its peak, it eventually returned to nearly flat levels by market close.

Outlook: Inflation data in focus

As the rupee remains under pressure, investors are now turning their attention to India's retail inflation data, which is expected to be released at 4 P.M. IST. Economists predict a moderation in inflation, with year-on-year inflation expected to decline to 5.53 per cent for November, down from 6.21 per cent in October.