On Tuesday, the Indian Rupee weakened by 18 paise against the US dollar, closing at 84.44 per dollar compared to the previous day’s close of 84.26. The fall was primarily driven by foreign banks purchasing dollars and a slip in other Asian currencies. However, the depreciation was limited by a decline in the dollar index, which measures the strength of the US dollar against a basket of major currencies.
Dollar Purchases by Foreign Banks Impact Rupee
Dealers noted that the rupee depreciated as foreign banks bought dollars, particularly influenced by a dip in the Chinese Yuan. Despite this, the loss in the rupee was somewhat cushioned by a decline in the dollar index, which dropped 0.1% to 99.7. This decline in the dollar index was attributed to the Federal Reserve’s meeting, which had an impact on the overall strength of the greenback.
The rupee’s low during the day hit 84.64 per dollar, but it later recovered slightly by the close. Despite the rupee weakening on Tuesday, it has appreciated by 1.21% in the current financial year and 1.39% in the current calendar year. Dealers attributed part of the weakness to the Reserve Bank of India (RBI) likely squaring off its short dollar position.
RBI’s Role in Managing Dollar Exposure
The Reserve Bank of India (RBI) has been adjusting its dollar exposure over recent months, especially following a period of rising net short dollar positions in its forward book. Data shows that by the end of March, the RBI had reduced its net short dollar position to $64.2 billion from $88.7 billion at the end of February. This adjustment in the RBI’s dollar exposure contributed to the rupee’s movement on Tuesday.
As the currency market navigates fluctuations and central bank interventions, the rupee’s performance remains sensitive to both external market dynamics and RBI strategies.
