The Indian rupee has weakened significantly, testing levels of 88.40 to 88.60, with currency experts warning of further decline before stabilization. Anindya Banerjee compared the current situation to 2013, noting the rupee's stark underperformance against peers.

Key Factors Driving Rupee Weakness

• Ongoing trade disputes with the U.S.
• Foreign portfolio investment outflows of $4.60 billion since June
• Reduced net FDI flows
• Decreased RBI intervention in spot markets

Rupee Performance Compared to Other Currencies

Among 26 major currencies, most have appreciated 7-8% against the dollar while the rupee has declined 3%, creating a 10-11% performance gap. The U.S. dollar index is down 12% from its highs, with wedges ranging 10-14%.

RBI's Approach and Future Outlook

Banerjee expects the RBI to maintain a calibrated approach, intervening mainly to contain volatility unless the rupee reaches 89.00 or above. He anticipates potential rupee appreciation once trade disputes resolve, noting that current macro and political conditions are stronger than in 2013.

Comparison to 2013

While the current situation draws parallels to 2013, experts note that India's macroeconomic and political conditions are currently stronger, which could potentially lead to a different outcome for the rupee in the long term.

As global economic conditions continue to evolve, market participants will closely monitor the rupee's performance and the RBI's interventions in the coming weeks.

The Indian rupee has shown varied performance against major global currencies, with significant movements observed in the forex market. While facing challenges against some currencies, it has demonstrated strength against others, reflecting the complex dynamics of international finance.

Performance Against Major Currencies

US Dollar

• The rupee declined approximately 3% against the US dollar.
• This represents the steepest drop among Asian currencies.
• The decline was cushioned by a 10% year-to-date slip in the dollar index.

Euro and British Pound

• The rupee fell nearly 14% against the euro.
• It declined 10% against the British pound.
• These larger drops are attributed to policy shift expectations in Europe and the UK.

Japanese Yen

• Interestingly, the rupee gained nearly 10% against the Japanese yen.
• This marks the strongest performance among Asian currencies.

Foreign Investment Flows

Foreign Portfolio Investment

• Foreign portfolio investors withdrew nearly $16 billion from Indian equities.
• Reasons cited include stretched valuations and slowing earnings growth.

Bond Inflows

• Bond inflows dropped to $5.5 billion, down from $17 billion in the previous period.

Foreign Direct Investment

• Foreign direct investment rose 15% to $18.6 billion in the first quarter.

Monthly Performance

• The rupee declined in every month except March and April.
• July recorded the sharpest fall of 2.1%.
• Despite an S&P Global sovereign credit rating upgrade in August, the rupee still experienced a 0.7% decline that month.

Recent Developments

Rupee's Recent Strength

• In a recent trading session, the rupee gained 5 paise against the US dollar.
• The domestic currency opened at 88.11 and improved to 88.10 against the greenback.

Factors Influencing Rupee's Performance

1. FII Inflows:

   • Foreign institutional investors (FIIs) purchased equities worth Rs 2,050.46 crore.
   • This influx of foreign capital has provided support to the rupee.

2. US-India Trade Talks:

   • US President indicated ongoing trade negotiations with India.
   • Potential progress in bilateral trade relations could impact the rupee.

3. Global Factors:

   • The dollar index declined 0.45% to 97.90, bolstering the rupee's position.

4. Oil Prices:

   • Rising crude oil prices have capped further gains in the rupee.
   • Brent crude traded 0.86% higher at $66.96 per barrel.
   • Geopolitical tensions, including Israel's attacks on Hamas leadership in Qatar, influenced oil prices.

Domestic Equity Markets

Indian stock markets displayed positive momentum:

The upward movement in domestic equities could potentially attract more foreign investments, supporting the rupee.

Analyst Projections

• Analysts expect limited further downside for the rupee.
• BNP Paribas strategist Chandresh Jain projects the rupee to trade in the 87-89 range.
• Another 2-3% move in the dollar is anticipated.

As global and domestic factors continue to influence currency movements, market participants will closely monitor developments in US-India trade talks, oil price fluctuations, and FII flows for cues on the rupee's future trajectory.