The Indian rupee reached a record low of 85.84 against the U.S. dollar on Monday, driven by a strong dollar and sluggish capital inflows amid slowing economic growth.
This decline surpassed its previous low of 85.8075 from late December, with the currency closing the session at 85.8275, a drop of nearly 0.1% for the day.
Despite the rupee's struggles, the Reserve Bank of India intervened by selling dollars, which helped to mitigate further losses during trading. A trader noted expectations that the RBI would aim to keep the USD/INR below 86 before the inauguration of President-elect Trump on January 20.
On the same day, the dollar index fell 0.3% to 108.5, retreating from a two-year high. However, this did not significantly bolster the rupee, which faced persistent demand for dollars in both the local spot and non-deliverable forwards markets.
ING Bank indicated that ongoing dollar demand from foreign banks, likely acting for custodial clients, contributed to the rupee's pressure. The bank also mentioned that the dollar index's target of 110 remains attainable in the coming weeks.
Indian equity markets reflected the currency's woes, with benchmark indices BSE Sensex and Nifty 50 both declining by 1.6%. Furthermore, foreign investors have sold $1.1 billion in local stocks and bonds in January, according to stock depository data.