Rupee Faces Headwinds

The Indian rupee is facing headwinds as higher yields on US bonds and rising crude oil prices in the global market have firmed up the demand for dollars.

According to market analysts, while the Reserve Bank of India (RBI) has succeeded in keeping the volatility of the rupee in check by releasing US dollars from its reserves, this cannot continue beyond a point as there has been a continuous decline in India’s foreign exchange kitty in recent weeks.

The rupee was trading at 83.27 vis-a-vis the US dollar in pre-noon trade on Wednesday down from 83.25 in the previous session.

The RBI has been continuously intervening in the forex market during October to prevent the rupee from falling below the low of 83.29 vs the US dollar. Traders said.

India's foreign exchange reserves fell by $2.36 billion to $583.53 billion during the week ended October 20, according to RBI data released on October 27.

In the preceding week the country’s forex reserves had increased by $1.15 billion, reversing a continuous decline over the previous five weeks.

The country’s foreign exchange reserves had fallen by $14.166 billion to a five-month low of $584.74 billion for the week ended October 6.

With the fresh decline the forex reserves have fallen even further.

Any sharp decline in the country’s forex kitty leaves the RBI less headroom to intervene in the market to stabilise the rupee which would weaken the Indian currency.