Rupee hits new record low against US dollar on RBI rate cut hopes

The Indian rupee weakened to a record low of 87.487 per dollar on Wednesday, before closing at 87.465 per dollar, down 40 paisa from its previous close, on expectations that the Reserve Bank of India (RBI) will cut interest rates on February 7, traders said.

The sharp decline in the currency triggered stop losses for many traders, adding further pressure on the rupee. Persistent outflows for Indian equities, along with dollar demand from oil companies, also weighed on the local unit.

The currency had closed at 87.07/$1 on Tuesday.

The rupee was Wednesday’s worst performer among Asian currencies, even as the dollar index softened to 107.6 levels, according to Reuters. The weakness brought the rupee close to 87.50 levels, causing panic buying from importers, traders said.

“Foreign banks were major buyers of dollars in today’s trade, and stop losses were triggered as the currency breached 87.30/$1 levels. After today’s fall, the rupee would have corrected in terms of the real effective exchange rate (REER) and would be closer to 105 levels,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

A stop loss is an advance order to sell an asset when it reaches a particular price point and is used to limit loss in trade.Intervention from the RBI was muted, said Bhansali, and the majority of the depreciation took place in the second half of the day.On the other hand, the deficit in the banking system stood at Rs 38,215 crore, while yields on the 10 year benchmark stood at 6.66%, CCIL data showed.

The RBI also announced the 56-day variable rate repo (VRR) auction will take place on Friday, February 7, during the second half of the day after the monetary policy committee takes a decision on the repo rate. The transaction with a notified amount of Rs 50,000 crore will be reversed on April 4.