Rupee keeps off 80 per dollar; foreign exchange reserves at 15-month low

The rupee on Friday came within touching distance of the 80 per dollar-mark but managed to recover ground and settle flat versus the greenback because of corporate inflows and likely interventions by the Reserve Bank of India (RBI), dealers said.

The country’s foreign exchange reserves had declined by $8 billion in the week ended July 8 to hit a 15-month low of $580.25 billion as the central bank stepped up its intervention in the forex market to slow down the pace of the rupee’s fall. Reserves have fallen by $62 billion from their peak in September last year.

The rupee settled at 79.88 versus the dollar on Friday, unchanged from the previous close. In the course of trade, the domestic currency weakened to a low of 79.96 — a new record intraday low.

“There was support for the rupee today because there were decent dollar sales on account of some large corporate flows. The RBI, too, was intervening at the 79.90/$1 mark, which is why we didn’t see 80/$1 happening today itself,” said a currency trader at a state-owned bank.

With the exception of Friday, the rupee marked a new closing low on every trading day this week as fears of a 100-basis-point rate hike by the Federal Reserve and the consequent strengthening of the dollar index eroded appetite for emerging market currencies.

With the Federal Reserve poised to hike rates by 100 basis points at its meeting towards the end of July, traders see the rupee weakening past the 80-mark next week.

Over the last five days of trade, the domestic currency has depreciated 0.8 per cent versus the dollar, taking the losses in CY22, so far, to 6.9 per cent.

A slight retreat in the dollar index, which has charted fresh 20-year highs this week, also gave some relief to the rupee on Friday, dealers said. The dollar index was at 108.44 at 3.30 pm IST.

“The Indian rupee snapped a five-day losing streak and managed to float above 80 as the dollar index, (which is a) basket of six currencies, retreated from the two-decade high of 109.29 on Thursday and equities rebounded,” HDFC Securities Research Analyst Dilip Parmar told Business Standard. “In the short term, spot USDINR is having psychological resistance at 80 and breaching the same will pave the way for 80.90.”

Dwindling reserves

The latest data showed that the RBI’s headline foreign exchange reserves declined by $8.1 billion in the week ended July 8. The fall in reserves was primarily on account of a $6.7-billion decline in foreign currency assets, the data showed.

The hefty decline in the RBI’s reserves was likely on account of heavy market interventions in the form of dollar sales to rein in the rupee’s depreciation versus the dollar, traders said.

The rupee declined 0.3 per cent versus the dollar in the week ended July 8, marking fresh lows during the week as the data showed a record high monthly trade deficit for India in June.

Since the Ukraine war broke out in late February, the RBI has heavily sold dollars in the foreign exchange market to shield the rupee from runaway depreciation. The headline reserves were at $631.53 billion as of February 25.

In June, the RBI had said that reserves worth around $590 billion were equivalent to nearly 10 months of imports projected for the current financial year.