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Indian Rupee Plummets to Historic Low Against the Dollar Amid Market Turmoil

Record Low for the Rupee

In a dramatic turn of events, the Indian rupee hit a new historic low against the dollar, closing at 85.53 on Friday. The currency briefly touched an intraday low of 85.80, marking its sharpest fall in nearly two years, as reported by Bloomberg.

Rupee hits new low of 85.80/$, biggest 1-day fall in 2 years

Factors Behind the Fall

The rupee's decline was driven by a combination of panic dollar buying from importers, increased month-end demand, and the maturing of non-deliverable forwards (NDFs), which all contributed to heightened dollar demand in the market. The Reserve Bank of India (RBI) intervened by selling dollars to stabilize the rupee, but the broader market environment remained challenging.

Market Challenges

Rising US Treasury yields, higher crude oil prices, and persistent foreign fund outflows have all played a role in capping the rupee's recovery. Dealers noted that the RBI, holding $21 billion in short-term forward contracts, refrained from rolling them over, leading to a scarcity of dollars and an oversupply of rupees.

Expert Insights

"The rupee hit the 85.80 level today before RBI stepped in to sell dollars. Interestingly, there was no supply of dollars from RBI for nearly an hour, allowing the rupee to slip significantly - a surprising deviation from its typical approach," said KN Dey, a forex consultant advising corporates on currency. He also mentioned that the market is likely to remain quiet due to year-end holidays, with activity expected to pick up from the end of the first week of the new year.