The Indian rupee has reached a new all-time low of 88.7975 against the US dollar, surpassing its previous record. This decline comes as Indian government bonds also saw a slight dip in early trading, with traders awaiting central and state government borrowing calendars.

Factors Contributing to Rupee's Decline

Several factors have contributed to the rupee's weakness:

• Pressure from U.S. visa fee hikes and reduced foreign equity flows
• Foreign Portfolio Investors (FPIs) selling shares worth ₹2,910.09 crore
• Continued buying of dollars
• Global risk-aversion and trade policy uncertainty
• Concerns over 50% U.S. tariffs on Indian goods
• Sharp increases in H-1B visa fees threatening IT sector profits

Currency Market Developments

• The rupee opened at 88.41 before touching the record intraday low of 88.7975
• The rupee closed at 88.7550, declining 0.5% in its steepest drop in nearly a month
• The currency has fallen over 3.5% this year, making it one of the region's worst performers
• The dollar index traded 0.04% higher at 97.38
• Brent crude was down 0.51% at $66.23 per barrel

Bond Market Developments

• The 10-year benchmark yield rose to 6.50% from the previous close of 6.49%
• New Delhi's second-half debt plan and states' quarterly borrowing calendar are expected by end-September
• Market participants have recommended the Reserve Bank of India (RBI) reduce ultra-long bond proportions and cut weekly auction sizes
• The RBI has advised states to spread borrowing across different tenures
• India's Chief Economic Adviser stated that second-half borrowing will remain unchanged
• Indian states are set to raise ₹270.00 billion through bond sales

Overnight Index Swap Rates

Overnight index swap rates have increased:

Impact on IT Sector and Remittances

• India's IT stocks fell 0.7%, adding to an 18% decline year-to-date
• HSBC economists estimate that 5.4 million Indians in the U.S. send approximately $33 billion in remittances annually
• Potential restrictions on 80,000 new visa applicants could reduce inflows by $500 million

Government and RBI Stance

Despite the rupee's decline, India's Chief Economic Advisor (CEA) Anantha Nageswaran has expressed confidence in the Indian economy's resilience, citing:

1. India's ample foreign exchange reserves
2. The country's low external debt

Nageswaran suggested that the current weakness could be due to either higher dollar demand or lower portfolio inflows, and might support export competitiveness to a limited extent.

The central bank intervened to support the rupee but appeared willing to allow gradual weakening rather than defend a specific level.

Inflation Outlook

The CEA provided an optimistic inflation forecast:

• Inflation trends are expected to remain 'fairly benign' until the end of the next calendar year, assuming normal monsoon conditions
• Inflation is anticipated to stay controlled into 2026

Market Dynamics

While IPO launches worth ₹7,500.00 crore brought some inflows, these were absorbed by large dollar purchases. The Federal Reserve is expected to cut rates by 25 basis points with 89% probability, which could influence currency movements.

Domestic equity markets also declined:

However, broader equity indexes remained largely unchanged.

Investors and market participants will likely closely monitor these trends in the coming months, particularly the movement in bond yields and the rupee's performance against major currencies.

The Indian rupee is facing increased pressure following significant changes in U.S. visa regulations, particularly affecting the technology sector. The currency closed 0.20% weaker at 88.31 against the U.S. dollar, reflecting market concerns over the new policy.

Impact on Indian Tech Sector

The U.S. government has introduced a $100,000 fee on new H-1B visa applications, a move that has sent shockwaves through the Indian IT industry. As a result:

• Indian IT stocks fell nearly 3%
• BSE Sensex declined 0.50%
• Nifty 50 dropped 0.50%

This development is particularly significant for Indian companies, as they heavily rely on the H-1B visa program to operate in their largest market, the United States.

Currency Market Reaction

The rupee's weakness is part of a broader trend, with the currency having declined 3% this year. This stands in stark contrast to the performance of other Asian currencies:

• Offshore yuan: Gained 3%-6%
• Korean won: Gained 3%-6%

MUFG, a prominent financial institution, noted that India could be disproportionately affected by these visa changes and expects the rupee to underperform against Asian currencies and G10 crosses.

Market Dynamics

Despite the dollar index falling 0.20% to 97.47, the rupee faced additional pressure from dollar demand by foreign and private banks. This highlights the complex interplay of factors affecting the currency's value.

Global Economic Outlook

Amid these developments, money markets are pricing in a 92% chance of a Federal Reserve rate cut in October. This expectation of looser monetary policy in the United States could have further implications for global currency markets, including the Indian rupee.

As India navigates these economic challenges, the interplay between international policy changes, particularly in visa regulations, and domestic financial markets will be crucial in shaping the country's economic landscape. The technology sector, a key driver of India's economy, will be closely watched as it adapts to these new regulatory and financial pressures.