Outflows caused by Hyundai routing back funds to its parent company in South Korea after its latest IPO also put pressure on the rupee
The rupee closed at 84.0725 against the U.S. dollar, about one paisa lower than its previous close at 84.0650 in the previous session, LSEG data showed.
On Monday, foreign investors sold Rs. 2,261.8 crores, BSE data showed, on a monthly basis in October so far, FIIs have sold almost $10 billion, depository data showed, surpassing the previous peak outflow of $8.35 billion in March 2020.
“Outflows have slowed a bit, but yes they are still there. Outflows from Hyundai could also cause some fall in the rupee. However, dollar supply was continuously there in the market today by banks, likely on behalf of the RBI”, said Dilip Parmar, currency research analyst at HDFC Securities.
The dollar index has remained stronger ahead of the presidential elections in the US at 103.3. “The dollar is getting a boost from the fact that if Trump wins the election in the US, interest rate fall will be slower though the market has practically cemented a 25 bps reduction by The US Federal reserve on 7th November”, said Anil Bhansali, head of treasury at Finrex Treasury Advisors. A fall in US interest rates makes the dollar index weaker, boosting emerging market currencies like the Indian rupee. The probability of a 25 basis point rate cut by the US Fed is 90%, according to the CME FedWatch tool. Ta hefty 50 basis point rate cut the US Fed in September had caused the dollar index to weaken
Yields on the 10 year benchmark government security increased three basis points, closing at 6.83%, versus its previous close of 6.80% as the RBI governor on Friday said that it was not the right time to cut interest rates, causing market participants to speculate that there would be no rate cut in December.
“Inflation is moderating, with certain risks about which we have to be very vigilant. Therefore, a rate cut at this stage will be very premature and can be very, very risky. When your inflation is 5.5% and the next print is also expected to be high, you can’t be cutting rates at that point,” RBI Governor Shaktikanta Das said on Friday.