Rupee hits new low, traders says PSU banks selling dollar to stem further depreciation

The Indian rupee dropped to its lifetime low on Tuesday, hurt by persistent dollar demand from importers, including local oil companies, and a rise in U.S. bond yields, which boosted the dollar.

The Indian central bank was likely selling dollars to limit the rupee’s losses after it hit a record low on Tuesday on higher U.S. bond yields and dollar demand from local oil companies.

The rupee hit a low of 85.1850 against the U.S. dollar, slipping past its previous record low of 85.12 hit on Monday. The currency was last quoted at 85.1750 as of 10:10 a.m. IST.

Traders cited mild dollar sales from state-run banks, most likely on behalf of the Reserve Bank of India (RBI), which helped limit the rupee’s losses.

“Offers from state-run banks (on USD/INR) are there but they are not particularly aggressive, suggesting that the RBI may allow the gains to extend slightly,” a trader at a foreign bank said, who expected the dollar-rupee pair to rise to 85.20 on Tuesday.

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State-run banks were spotted offering dollars, mostly likely on behalf of the Reserve Bank of India (RBI), traders said.

Routine interventions by the RBI have kept a lid on the currency’s volatility even as it grapples with multiple headwinds, including a hawkish turn in the Federal Reserve’s outlook for interest rates in 2025, tepid capital flows and concerns about India’s slowing economic growth.

Furthermore, expectations about incoming U.S. President Donald Trump’s policies have boosted the dollar, putting it on course for its third monthly gain.

Global central banks have urged caution over their rate paths due to uncertainty on how Trump’s planned tariffs, lower taxes and immigration curbs might affect U.S. policy.

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The dollar index rose 0.1% to 108.2 on Tuesday and the 10-year U.S. Treasury yield hovered close to its seven-month high of 4.59% hit in the previous session. Asian currencies were mostly rangebound on the day.

Dollar offers from state-run banks were present near 85.16-85.17 levels but they are “not very heavy,” a trader at a private bank said.

The rupee could drift lower towards 85.20 during the day with RBI “likely keeping a check on any sharp declines,” the trader said.

“While RBI interventions may provide temporary relief, the currency’s trajectory will largely depend on broader global monetary policy trends, particularly the Fed’s actions, and domestic economic developments,” Amit Pabari, managing director at FX advisory firm CR Forex, said.