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13-12-2024
Bureau Report + Agencies
NEW DELHI/ MUMBAI: The Indian rupee weakened to its all-time low on Wednesday, pressured by heightened dollar bids in the non-deliverable forwards (NDF) market, while likely intervention by the Reserve Bank of India (RBI) helped limit losses, traders said.
The rupee fell to 84.86 in early trading, eclipsing its previous record low of 84.8575 hit on Tuesday. The currency was quoted at 84.8525 as of 10:00am IST.
State-run banks were spotted offering dollars, most likely on behalf of the RBI, traders said.
There is “quite strong demand in NDF which is hurting the rupee,” a trader at a foreign bank said, who expects the RBI to stay active and keep intra-day losses limited to 5-7 paisa.
Pressure from the NDF market also meant that the rupee was unable to benefit from a rise in most of its regional peers.
The dollar index was steady at 106.3 while most Asian currencies ticked up as investors awaited the closely watched US inflation data due later in the day.
The rupee has weakened 0.4% in December, underperforming nearly all of its regional peers as concerns over slowing economic growth have prompted expectations of domestic monetary policy easing.
While India’s central bank kept rates unchanged at its last meeting, the appointment of a new chief has fueled expectations of rate cuts next year, weighing on the rupee.
Investors will also pay close attention to the incoming Donald Trump administration’s policies with expected US trade tariffs posing a risk to emerging market assets.
“We expect USD/INR volatility to rise, though it would be unwise to expect USD strength to last the year (2025),” Neelkanth Mishra, chief economist at Axis Bank, said in a note.
The bank expects the rupee to weaken to 85.50 by the end of March 2025.
India’s economic growth slowed much more than expected in the third quarter, hampered by weaker expansions in manufacturing and consumption, likely adding pressure on the central bank for interest rate cuts.
Gross domestic output, opens new tab in the world’s fifth-biggest economy rose by 5.4% in July-September year-on-year, data showed on Friday, the slowest pace in seven quarters and below a Reuters poll of 6.5%. In the previous quarter it grew 6.7%.
India’s chief economic adviser V. Anantha Nageswaran told reporters the growth figure was disappointing amid a challenging global environment.
“The bulk of the slowdown has been predominantly due to the manufacturing sector … Some of it is also due to the presence of excess capacity elsewhere and imports dumping in India,” he said, highlighting surging imports of cheap steel from China, Japan and South Korea.
The slowdown, visible across a number of sectors, was indeed most pronounced in manufacturing, where year-on-year growth dropped to 2.2% compared with 7% the previous quarter.
“The economy has hit a bump on its post-pandemic recovery path, with a much slower manufacturing sector and mining sector dragging down growth prospects,” said Suman Chowdhury, chief economist at Acuite Ratings.
Economists say inflation, now running at around 6%, is biting into demand for goods ranging from soaps to shampoos to cars, particularly in urban areas. Private consumer spending rose 6.0% from a year earlier, compared with 7.4% in the previous quarter.
