The rupee fell to a near two-month low on Monday as equities fell tracking the rise of the Omicron variant of coronavirus in India.
The fall in the exchange rate came when the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) started its three-day meetings on Monday. The policy will be announced on Wednesday.
The partially convertible currency fell to 75.4250 a dollar, down from its previous close of 75.12. This is the lowest since October 12.
The rupee lost the most in the region, falling 0.338 per cent. The dollar index, which measures the greenback’s strength against major global currencies, rose 0.11 per cent to 96.2240.
“Since July 1, this is the third time the USDINR spot has closed above 75.40 levels. The last two times, there was no follow-through, but if the risk aversion persists, then USDINR can see further upside on the back of FPI outflows and corporate dollar demand,” said Anindya Banerjee, deputy vice president, currency derivatives and interest rate derivatives at Kotak Securities.
Banerjee expects the rupee to trade in the range of 75.20 and 75.70 in the near term.
The rupee has witnessed some volatility in November and December as the US Federal Reserve members sounded increasingly hawkish on inflation and taper.
To stem some of the volatility, the RBI sold dollars in the markets, showed recent data. The RBI sold a net $2.7 billion in the currency market for the week ending November 26.
According to Amit Pabari, managing director of CR Forex, the rupee could be under pressure in the coming days as trade deficit, and Fed’s increase of monthly taper plan “could further upset the sentiment for the foreign portfolio investors, and hence outflow could be seen.”
However, the initial public offerings and corporate borrowings would bring dollars onshore.
“December would be having a little higher volatility despite lesser trading days and global off due to the Christmas party mood,” said Pabari.