Rupee plunges to record low of 85.84 amid equity selloff, weak capital flows

The rupee slumped to an all-time low of 85.84 against the US dollar on Monday, dragged by bearish sentiment in domestic equities, tepid foreign capital inflows, and a strengthening dollar.

The currency, which breached its previous low of 85.8075 recorded in December, closed at 85.8275, down 0.1 per cent for the day.

Traders attributed the fall to persistent dollar demand in the spot and non-deliverable forward (NDF) markets, alongside a cautious outlook on India’s economic growth. 

RBI steps in, limits rupee losses

Despite the fall, the Reserve Bank of India’s dollar-selling intervention prevented sharper declines, market participants said. “It seems like the RBI will hold the USD/INR below 86 before Trump’s inauguration later this month,” a trader observed, referencing the anticipated term of the new US President.

The broader dollar index dipped 0.3 per cent to 108.5, retreating from its two-year high. However, analysts cautioned against expecting sustained relief for the rupee. “The hawkish Fed narrative keeps a dollar correction short-lived. A 110 target on the dollar index remains achievable,” ING Bank highlighted in its note.

Equities drag sentiment further

Domestic equity markets deepened the rupee’s woes as the Sensex and Nifty both plunged by 1.6 percent amid fears of Human Metapneumovirus (HMPV) cases in India and a slowdown in global markets. Foreign portfolio investors (FPIs) sold Rs 9,130 crore worth of Indian assets in January alone.

With global cues remaining fragile and India’s growth outlook subdued, traders anticipate continued rupee volatility in the short term. Analysts warn investors to brace for further headwinds as capital outflows persist and geopolitical tensions intensify.