Indian Rupee Ends Near Record Low Against Dollar Amid Election Uncertainty, RBI Intervention Limits Losses

The Indian rupee closed close to its all-time low against the dollar on Thursday, experiencing pressure from ongoing equity outflows and market concerns regarding the U.S. election outcome. The central bank, however, intervened actively throughout October, keeping the local currency within a relatively narrow range.

On Thursday, the rupee settled at 84.0750 per U.S. dollar, showing only a slight change from Wednesday’s close of 84.0775. The Indian currency market will observe a public holiday on Friday, pausing trade. Earlier in Friday’s session, the rupee briefly touched an unprecedented low of 84.0950. Over the course of October, the currency depreciated by about 0.3%, fluctuating between 83.79 and the record low of 84.0950.

The Reserve Bank of India (RBI) took consistent measures to limit the rupee’s decline, leading to the currency’s relative outperformance compared to other major Asian currencies, particularly as the U.S. presidential election looms on November 5. By selling dollars almost daily over the past two weeks, the RBI aimed to moderate the depreciation and maintain stability.

Analysts have indicated that the election’s outcome could significantly impact the dollar and, by extension, Asian currencies. Should Republican candidate Donald Trump secure a victory, the dollar index could see an increase, U.S. Treasury yields may rise, and Asian currencies could weaken as a result. According to Reuters, the RBI has prepared to handle any potential surge in foreign fund outflows and prevent a sharp drop in the rupee in the event of such an outcome.

While the central bank’s active defense of the rupee has shielded it from major volatility, analysts have cautioned that this could lead to a lack of vigilance among importers and exporters regarding global market risks. “The RBI’s actions could lead to complacency and major debacle in the event of any global turmoil or a black swan event,” commented Jayram Krishnamurthy, co-founder of Almus Risk Consulting.

The rupee has also been weighed down by continuous foreign outflows from Indian equities. This month has seen significant equity withdrawals from foreign investors, driven by high valuations in Indian markets relative to other options and China’s ongoing stimulus plans. Foreign investors have pulled nearly $11 billion from Indian equities in October, a marked reversal from the $7 billion net inflows recorded in September.