Rupee Plunges to New Low amid Rising Global Tensions and Investor Outflows
The Indian rupee devalued significantly to breach an unfortunate new benchmark, closing at its weakest ever rate against the American dollar on Tuesday. Escalating geopolitical conflicts abroad and a fresh wave of withdrawals by foreign portfolio investors drove the domestic currency to end at 83.54 rupee per dollar.
Rising hostilities between Iran and Israel in the volatile Middle East fueled risk-aversion among global markets. Investors sought refuge in safer assets like the dollar due to worries over a potential broader military engagement between the two nations. Back home, foreign portfolio funds sold over 3200 crore rupees worth of Indian stocks, extending the exit momentum seen in the previous session. Tax treaty changes with Mauritius also weighed on sentiment.
The dollar index climbed above 106 points amid strong demand, exacerbating pressure on other currencies including the rupee. Additionally, forecasts of further rate hikes by the US Federal Reserve boosted yields on American government bonds close to 4.67%, making dollar assets relatively more lucrative. Analysts observe that while macroeconomic fundamentals remain sound, sustained dollar strength and portfolio outflows could pose challenges for the local unit going forward.
The equity indices cracked further losing over half a percent each. Broader market volatility is expected to persist tied to evolving geopolitical dynamics and changing investor risk preferences internationally. Currency traders anticipate the rupee may trade in a wide 83 to 84 range in the near term with a gradual downward bias if dollar dominance and capital outflows sustain. Policymakers will aim to curb volatility and stabilize the exchange rate through interventions as needed.
