The rupee fell to 90.7850, extending its year-to-date decline to about 6%, before ending the session slightly higher at 90.73, compared with 90.4150 in the previous session.
The Reserve Bank of India likely intervened to cap the rupee’s fall, traders said, while also noting that gradual depreciation of the currency is likely to persist in the absence of a trade deal with the United States.
“Let’s see what happens in the next few months,” India’s trade secretary said on Monday, referring to the ongoing negotiations. “There’s a fair expectation that both countries will be able to agree to a deal to lower reciprocal tariffs,” he said.
India’s merchandise exports to the U.S., the country’s largest export market, rose over 21% year-on-year in November, data released on Monday showed.
This helped narrow the country’s merchandise trade deficit to a five-month low of $24.53 billion last month. The improved data provided only fleeting relief to the currency in the face of persistent corporate hedging demand and likely portfolio outflows, traders said.
Foreign investors have net sold over $18 billion of local stocks over the year so far, on track to be the worst yearly outflow on record. The negatively skewed dollar flows and the drag from the trade stalemate have left the rupee unable to benefit from a broadly weaker dollar, which is on track to end the year down more than 9% against a basket of major currencies.
The focus now turns to the RBI’s 3-year dollar-rupee buy/sell swap auction slated for Tuesday. Bankers expect the swap to be fully subscribed but say corporate interest could be muted due to elevated hedging costs.
