Indian Rupee Falls to Historic Low Against Dollar Amid Worsening Inflation

The Indian rupee recorded a mild recovery against the dollar through the Asian session on Tuesday after the USD/INR tapped a lifetime high.

The goodish bounce came after the central bank intervened in the weakening currency status, and bond yields climbed higher amid an uptick in crude oil prices. At the time of writing, the USD/INR trades at 77.57, down by 0.4% from its all-time high at 77.88, recorded yesterday.

Analysts noted that the Reserve Bank of India (RBI) began selling dollars through state-run banks when the USD/INR pair tapped the 77.75 mark, which helped the rupee regain some losses.

Assistant economist at Capital Economics Adam Hoyes noted: “Given that the RBI has ample FX reserves, we expect the rupee to remain more stable and weaken less than most other EM currencies against the greenback over the next couple of years.”

Analysts also explained that the RBI has increased its activities in the currency markets over the past few weeks to temper the volatility brewing in the rupee.

Rupee to Continue Descent Against Dollar Amid Rising Volatility

Forex analyst at Motilal Oswal Financial Services Gaurang Somaiya explained: “Rupee fell to a fresh all-time low as broader strength in the dollar continued and also as global crude oil prices continued to trade higher.” Somaiya added:

“We expect the momentum for the USD/INR to remain positive and quote in the range of 77.40 and 78.20.”

Reuters reported that the recent jump in global inflation exerted some bearish pressure on the rupee while simultaneously pushing bond yields higher. That said, economists opined that rising local inflation could prompt the RBI to increase its lending rates again in its policy review in June. The bank unexpectedly raised its rates by 0.40%, bringing its interest rate to 4.4%, earlier this month.