The Indian rupee fell to another record low on Tuesday as emerging market currencies continued to slide against the U.S. dollar.
The Indian rupee fell 0.3% in early trade to 78.57 against the dollar. It weakened further to 78.75/$. The rupee has weakened 5.4% from the start of the year, according to Bloomberg data.
The Indian rupee has tip-toed to fresh record lows amid persistent foreign funds outflows, weaker macro data, and slowdown fears gripping the markets, said Sugandha Sachdeva, vice president for commodity and currency research at Religare Broking.
"Besides, India's forex reserves have witnessed a fall for the third consecutive week to $590.59 billion as the RBI is stepping up its intervention in the forex markets to curb the steep decline in the Indian rupee," Sachdeva said.
The Indian currency trimmed some of the losses to end the session on Tuesday at 78.77, a fresh closing low.
Rupee has depreciated against the dollar for three days in a row.
To be sure, weakness in the Indian currency is not out of line with other Asian currencies. The Philippines peso has depreciated 6.9% and the Indonesian rupiah has fallen 4%.
The rupee's performance has been caught between worsening external terms of trade led by oil, a fast-changing global risk environment, sharp FPI outflows from the equity markets, which are among the worst in emerging Asian markets, and the RBI's stance on forex, said Madhavi Arora, lead economist at Emkay Global Financial services.
The RBI has been supporting the rupee with strong interventions to counter the impact of outflows, she said.
According to Arora, the RBI may eventually let the exchange rate adjust to new realities, albeit orderly, letting it act as a natural macro stabiliser.
"Consistent rupee intervention has again pushed the real effective exchange rate into the overvalued zone. But falling forex reserves, persistently high commodity prices, limited exchange rate pass-through to inflation and elevated rupee valuations will likely tilt the balance toward a less interventionist forex policy in the coming months," Arora said.
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