The Indian rupee has shown a slight recovery, strengthening by 3 paise to 88.69 against the US dollar in early trading. This modest gain comes after the currency hit a record low of 88.76, sparking concerns in the financial markets.

Rupee's Performance

The Indian currency rebounded 4 paise to close at 88.72 per dollar. The recent strengthening is supported by positive Asian currencies and dollar weakness in overseas markets. However, the rupee remains under pressure from continued capital outflows and geopolitical developments, trading in a tight range.

Factors Influencing the Rupee

Several factors are currently influencing the rupee's performance:

• The dollar index declined 0.21% to 97.94
• Brent crude fell 0.58% to $69.72 per barrel
• Foreign Institutional Investors sold equities worth Rs 5,687.58 crore
• India's forex reserves dropped by $396 million to $702.57 billion for the week ended September 19

Market Expectations and RBI Intervention

Market experts suggest that the Reserve Bank of India (RBI) may intervene to keep the rupee within 88.80 levels. The central bank's upcoming policy decision is eagerly anticipated by investors, as it could significantly impact the currency's trajectory.

US Trade Policies

The United States has announced a 100% tariff on branded drugs from October 1, with exemptions for companies building US manufacturing plants. This development could potentially affect trade relations and impact the rupee.

Domestic Equity Markets

Despite the currency volatility, domestic equity markets showed resilience:

Looking Ahead

As the financial markets navigate these uncertain waters, all eyes are on the RBI's upcoming policy decision. The central bank's stance will likely play a crucial role in determining the short-term trajectory of both the rupee and market sentiment in India.

The Indian rupee has reached a historic low, marking its worst weekly performance in a month amidst significant US policy changes and Reserve Bank of India (RBI) interventions. The currency closed at 88.72 against the US dollar on Friday, recording a 0.70% weekly decline.

US Policy Changes Impact Indian Markets

Two major US policy shifts have contributed to the pressure on the Indian rupee:

1. H1-B Visa Fee Hikes: Sharp increases in H1-B visa fees could potentially impact the business models of Indian IT companies.
2. New Tariffs on Drugs: The White House announced new 100% tariffs on branded and patented drugs.

These policy changes have raised concerns about their potential impact on Indian businesses and the overall economy.

Equity Markets React

The ripple effects of these developments were felt in the Indian equity markets as well:

• The BSE Sensex and Nifty 50, India's benchmark equity indexes, each fell by 2.50% for the week.
• This decline marks the steepest drop for these indexes since late March.

RBI Intervention and Forex Reserves

The Reserve Bank of India (RBI) has taken action to mitigate steeper losses:

• The central bank intervened in the markets to prevent more significant declines in the rupee's value.
• In July, the RBI sold $2.54 billion to stabilize the rupee, marking the first month in over 11 years without any dollar purchases.
• The last time RBI did not buy dollars was in February 2014.
• This intervention came as the rupee faced significant pressure, depreciating 2.23% in July.
• The pause in purchases contributed to India's foreign exchange reserves declining from $699.74 billion on July 4 to $688.87 billion on August 1.
• Currently, India's forex reserves stand at nearly $703 billion, close to all-time highs.

Rupee Performance

• The rupee has declined around 3.65% and 3.48% year-to-date against the dollar, representing the highest depreciation after two financial years.
• External factors including uncertainty over US tariffs, the Russia-Ukraine war, Middle East tensions, and domestic foreign investor outflows have pressured the currency.

Outlook

The combination of external policy shifts and domestic market reactions has created a challenging environment for the Indian rupee. While the RBI's interventions have helped to manage the currency's decline, the situation remains dynamic. Experts note that the RBI's actions signal a shift from routine reserve accumulation to defensive interventions using both spot and forward markets.

Market participants will likely continue to monitor US policy developments and their potential impacts on Indian businesses and the broader economy. As global economic conditions evolve, the performance of the Indian rupee and domestic equity markets will remain key indicators of India's economic resilience and adaptability to international policy changes.