Despite a rally of 128 paise in morning trade following the RBI action of capping the net open positions for banks at $100 million, the rupee on Monday hit the all-time low of 95.20 in the second half of the trade, closing at a new low of 94.83.
Monday’s closing low was the steepest since the one saw in fiscal 2010-11, traders said the rupee failed to hold on to the level it gained in the morning trade following the RBI’s measure as the fall in domestic equity market and tension in West Asia remained the major pain points for the domestic currency.
The Reserve Bank late Friday night brought down the net open position that banks can keep overnight at $100 million. However, signalling its structural weakness, the rupee could not hold on to the morning rally and by afternoon it gave up all the gains and closed at a new low of 94.83 as against 94.81 last Friday.
With the new closing low, the rupee has lost more than 10.5% this fiscal. A trader said the rupee could not hold onto the morning gains as large corporates began to engage in arbitrage trades between the onshore spot market and non-deliverable forwards. The space for such trades was opened up by the central bank’s tightening of banks' forex positions on Friday.
The rupee is on course to log its steepest fiscal year drop since 2011-12, as the Iran war has raised risks for inflation and growth outlook, adding to the strain from global trade frictions, geopolitical flare-ups and persistent capital outflows.
Worries over elevated oil prices have put domestic stocks on course for their worst monthly drop since March 2020 and bonds on track for their worst fiscal year since 2023. Surging oil prices and rupee drop pushed bond yields above 7%.
Another pain point is a strong dollar with the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.06% lower at 100.09.