MUMBAI: Indicating a hands-free approach especially in a week when the rupee crossed the psychologically sensitive 90-a-dollar mark, the forex reserves rose by over $1 billion, while the rupee ended flat after hitting a new low of 90.56 on Friday. It had closed at the lowest level of 90.32 on Thursday.
The currency, on course to end the worst year after 2022, ended little changed after hitting a record low on Friday but notched its second weekly fall in a row as investors continued to fret over prolonged US-India trade deal negotiations. Bankers and analysts expect the currency to keep drifting lower in the near term with interventions by the central bank keeping a lid on volatility.
The RBI has spent more than $60 billion in forwards market to defend the rupee so far this fiscal and the forex reserves have never clawed back to the high of $704.9 billion it had touched in the last week of September 2024 as the pressure on the rupee began from October 2024.The rupee closed at 90.415, down 0.5% on the week and losing closer to 6% for the year. It plumbed to 90.56 down 24 paise in early trading Friday but held above that level once the central bank stepped in to support the currency, traders said, adding the pain was also due to high demand for dollar.
Meanwhile, the RBI said that forex reserves rose by $1.033 billion to $687.26 billion in the week to December 5. In the previous reporting week, the forex reserves had dropped by $1.877 billion to $686.227 billion. Foreign currency assets, a major component of the reserves, fell by $151 million to $556.88 billion, the RBI said, adding the value of the gold reserves rose $1.188 billion to $106.984 billion and that of the special drawing rights also rose $93 million to $18.721 billion.
"Pressure on the currency has persisted since steep US tariffs came into effect. We expect this to continue into 2026," Standard Chartered analysts said in a note, forecasting the rupee to weaken to 93 over the next 12 months.
Dilip Parmar, a research analyst at HDFC Securities said, "looking ahead, the immediate market resistance for the spot rupee-dollar pair now sits at 90.70 and the crucial support level has shifted significantly higher to 90.10 from 89.70. This change in the support floor confirms the underlying sentiment remains heavily skewed towards a further weakening of the rupee in the near-term."
Anindya Banerjee, the head of currency and commodities at Kotak Securities sees the rupee hurtling towards 91 soon. The rupee-dollar pair is under pressure from continued FPI outflows across both bonds and equities. With global yields climbing, domestic bonds are facing stress from the unwinding of the dollar and the yen carry trades, Banerjee said, adding, “the incremental positives around the trade deal could provide intermittent relief to the rupee. Overall, we expect a broad trading range of 89.50–91 on spot.”