The Indian rupee faces opposing pressures as it concludes a volatile week. On one side, the dollar has softened, offering potential relief, but on the other, heavy foreign equity outflows are exerting downward pressure on the currency. Over the past few days, the rupee has traded within an exceptionally narrow range of three paisa, setting a record for the year. During this time, it also fell to a new lifetime low.
According to the 1-month non-deliverable forward (NDF), the rupee is expected to open at a stable rate of around 84.0775 in the latest session, following a steady pattern from the day prior. This stability has largely been influenced by the Reserve Bank of India (RBI), which has actively intervened to support the rupee amidst rising U.S. Treasury yields and persistent equity outflows from Indian markets.
The RBI has intervened multiple times this week, offering support through public sector banks to curb the rupee’s decline. The central bank’s involvement has notably offset the impact of foreign money flowing out of Indian equities. Despite the ongoing equity outflows, this consistent intervention has helped prevent any significant depreciation in the rupee’s value.
On Tuesday, the rupee reached its lowest point to date, at 84.0825, but this milestone did not trigger a subsequent, sharp decline.
“We can keep debating whether what the RBI is doing is right or wrong and whether there will be a price to pay down the road,” commented a currency trader at a local bank. “The reality of the matter right now is that RBI’s chokehold, which has been there for a long time, will remain.” The trader anticipates a quiet trading day, with the rupee expected to hold within the 84.07-84.08 range.
Dollar Pullback and Foreign Equity Outflows
On Wednesday, the dollar index fell by 0.4% and continued to trend slightly lower in Asian markets, taking a brief respite after a strong rally. Despite this minor dip, confidence in the Federal Reserve’s cautious approach to rate cuts, along with the prospects of a Donald Trump victory in the upcoming election, continues to bolster the dollar’s value.
Meanwhile, foreign equity outflows from Indian markets are expected to exceed $10 billion this month—a significant reversal from the $7 billion in net inflows witnessed in September. This shift in capital flows is intensifying the rupee’s struggle against depreciation, with foreign investors increasingly withdrawing from Indian equities. According to recent data from the National Securities Depository Limited (NSDL), foreign investors sold a net $593.6 million worth of Indian shares on October 23, highlighting the extent of outflows as market sentiment shifts.
Key Market Indicators
Among the primary market indicators, the 1-month non-deliverable rupee forward stood at 84.18, while the onshore 1-month forward premium was at 10.5 paisa. The dollar index was down to 104.02, while Brent crude futures saw a slight increase of 0.4%, trading at $74.7 per barrel. The 10-year U.S. Treasury note yield held steady at 4.2%, reflecting stable demand for long-term government bonds amidst market uncertainty.