On Thursday, the Indian rupee reached a historic low against the US dollar, driven by demand for dollars related to expiring non-deliverable forward positions and corporate hedging. The central bank stepped in to prevent it from falling below the key level of 92. The rupee closed the session at 91.9550 per dollar, marking a 0.2% decrease from the previous day's close. At one point during the session, it dropped to 91.9850.

The currency's weakness also affected Indian government bonds, posing a challenge as the Reserve Bank of India's efforts to bolster banking liquidity clash with its interventions in the foreign exchange market.

Traders reported that the central bank intervened on Thursday to limit the rupee's decline. Concerns about further depreciation of the rupee are adding pressure to India's interest rate swaps market, leading to elevated overnight index swap rates that anticipate monetary tightening, despite no immediate need based on macroeconomic indicators.

Stay informed with the latest news. Follow KT on WhatsApp Channels.

Despite India's robust economic growth, the rupee's weakness contrasts with the country's positive economic performance. Projections indicate that the economy will grow between 6.8% to 7.2% in the upcoming fiscal year, slightly lower than the 7.4% forecast for the current fiscal year, as stated in the government's annual economic survey.

"The current valuation of the rupee does not accurately reflect India's strong economic fundamentals," the survey highlighted, acknowledging that the depreciation of the currency helps offset the impact of high US tariffs. A trade agreement with the US is crucial for boosting confidence in Indian markets, according to a hedge fund portfolio manager.

"Predicting long-term growth for India becomes complex given the country's intricate geopolitical position," the manager added, alluding to the hesitance of foreign investors towards Indian assets. Foreign investors have sold over $4 billion in local stocks in January alone, contributing to a total outflow of $19 billion in 2025. DBS Bank India anticipates the rupee to weaken to 93-94 against the dollar this year as capital inflows diminish.

ALSO READ

• UAE Central Bank holds benchmark rate, following US Fed move

• Looming Fed rate pause nudges bond investors back into risk

• AI spending, strong corporate profits, Fed rate cuts seen as key to 2026 stock market