MUMBAI: The rupee continued to plumb new depths, hitting an intraday low of 88.80 on Tuesday and ending the day at a fresh closing low for the second consecutive session at 88.79 to the greenback. The latest weakness is primarily driven by the worries over how the monetary policy committee would act on the key interest rates on Wednesday.
The currency opened four paise lower at 88.79 and went down further to hit an all-time low of 88.80. With this, the unit has fallen 3.71% so far this year and 0.7% in September, posting its fifth consecutive monthly decline, and is down a cumulative 5% in the last five months. On Monday the unit had closed at 88.76.
Another weakness of the rupee is the continuing fund outflows as foreign portfolio investors remain net sellers, pressuring equities, while the absence of progress on the India-US trade treaty has kept markets cautious ahead of the RBI policy outcome, according to Anil Bhansali, head of treasury at Finrex Treasury Advisors.
FPIs have sold close to $15 billion worth of equity since the beginning of FY 2026.
"The rise in the trade deficit, coupled with limited intervention from the central bank, has weighed on the rupee in recent months, despite its trade-weighted valuation suggesting it is undervalued," said Dilip Parmar, a forex analyst at HDFC Securities.
The future trajectory of the rupee will be highly dependent on foreign fund flows, developments in the trade talks, and how the dollar reacts to the US government shutdown. "Technically, the outlook for the pair remains bullish, with 89.10 acting as immediate resistance and 88.20 as a key support level," he said.
As trade friction remained tense, foreign investors have accelerated their selling of stocks, which increased after the US massively hiked the visa fee, pulling more than $2 billion from the market over the past six sessions.
The MPC is expected to maintain the status quo Wednesday, according to most analysts.
The rate-setting panel kept the repo rate unchanged in the August meeting, following a 50 bps cut in June. Earlier, the panel had reduced the rate by 25 bps each in February and April after holding it steady for 11 consecutive meetings.