The rupee crossed the 90 level for the first time in its history against the US dollar on Wednesday (December 3). The rupee fell 9 paise to open at a record low of 90.05 in early trade. This is considered to be a very important level psychologically, the breaking of which has increased the pressure on the rupee. Delays in trade deals with the US, weak portfolio flows and sluggish business activities have also accelerated the decline of the rupee.
Earlier on Tuesday, the rupee touched a new record low of 89.9475 intra-day and after the market closed, it also crossed the level of 90 per dollar on the interbank platform. Despite the fall for the fifth consecutive season, the intervention of the RBI could not prove to be effective.
Why broken ‘88.80’ technical support?
Market experts say that the slide below 88.80 was a breach of an important psychological and technical support for the rupee.
Since then, pressure on the rupee has increased because:
- Capital flows continue to weaken
- Importers are buying massive dollars
- Betting has increased in recent times
- FPI sell-off continues
Why is the rupee weakening? – Main reasons
According to Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, the main reasons for the rupee’s decline are:
- Strong demand for dollars from importers
- Short-covering of speculators
- Strategies to support exporters by government and RBI
- Banks buy large amounts of dollars at high rates
He said that nationalized banks bought the dollar heavily on Tuesday, due to which the dollar reached 90.0050 even after trading. Due to stalled India-US trade talks and heavy FPI outflows, the pressure has increased. Bhansali estimates that if the RBI lowers the support at the 90 level, the rupee may even go up to 91.