The Indian rupee fell to a record low of 85.12 against the U.S. dollar on Monday, driven by weakness in the offshore Chinese yuan and strong dollar demand from importers, particularly for month-end payments. This marks the fifth consecutive trading session of decline, surpassing the previous low of 85.10 set on Friday.
During the session, the rupee closed at 85.1175, reflecting a 0.1% decrease for the day. The offshore Chinese yuan also weakened, trading at 7.30, down 0.2%, while the dollar index edged up 0.1% to 107.9.
State-run banks reportedly engaged in mild dollar sales, likely on behalf of the Reserve Bank of India (RBI), which helped mitigate the rupee's losses. The RBI has been actively intervening to support the rupee amidst challenges such as a hawkish U.S. Federal Reserve outlook for policy rates, concerns over India's economic growth, and sluggish capital flows.
Additionally, state-run banks were noted conducting mid-tenor dollar-rupee buy/sell swaps. The RBI's strategy includes increasing forward dollar sales to minimize the effects of spot market interventions on the banking system's cash and foreign exchange reserves.
India's forex reserves have decreased to a six-month low, attributed to the RBI's interventions aimed at preventing excessive rupee depreciation. Analysts predict the rupee will remain within the 84.70-85.20 range in the near term.
On the derivatives front, dollar-rupee forward premiums increased, with the 1-year implied yield rising by 2 basis points to 2.24%. The 1-month forward premiums also saw an uptick to 20 paisa, influenced by a rise in the overnight swap rate linked to anticipated cash dollar inflows from ongoing initial public offerings (IPO).