Pressure in NDF market pushes rupee to all-time low of Rs 84.88

Pressure in NDF market pushes rupee to all-time low of Rs 84.88

Indian rupee touched an all-time low in the early trade on Thursday due to pressure from the foreign investor-led sell-off in equities and rising onshore forward premium.

Indian rupee fell to all-time low to 84.88 against the US dollar in the early trades, as compared to 84.86 at open against the greenback.

"There has been lot of paying interest seen in the market, which is a reflection from the rising onshore forward premiums. This is because there seems to be arbitrage opportunity between onshore and non-deliverable forward (NDF) market. NDF is trading at a premium to onshore market," said Kunal Sodhani, Vice-President at Shinhan Bank.

Currency experts said that the CPI print in the US which spur the hope for the rate cut in December, put a pressure on the forward premiums and ultimately impacting rupee.

Usually, short-term premium are higher than long term term premium, but the trend has reversed now, which is putting pressure on the Indian rupee.

The US Labor Department's December 11 report revealed that the Consumer Price Index (CPI) rose by 0.3 percent month-on-month in November, in line with market expectations. On an annual basis, the CPI stood at 2.7 percent, also matching estimates.

The CME FedWatch Tool indicates a 99 percent probability of a 25-basis-point rate cut during the Federal Open Market Committee (FOMC) meeting scheduled for December 17–18. A Fed rate cut could bolster domestic equities by attracting foreign inflows.

A forex dealer with a brokerage firm said that the forward premiums in the NDF market will stabilise after the release of India's CPI print later today.

The Indian rupee has been under pressure since last few months due to growth worries and foreign investors selling in the Indian equities.

So far, in 2024, Indian rupee has depreciated around 1.80 percent. To defend this, the Reserve Bank of India (RBI) has been intervening in the market in spot as well as forward market. The central bank is more active in the forward market than the sppt market.

According to RBI bulletin data, outstanding net forward sales by the central bank stood at $14.580 billion in September, $18.98 billion in August, $9.10 billion in July, $15.83 billion in June, $10.36 billion in May, $16.257 billion in April and $541 million in March.

However, even as there was heavy selling in the NDF market, India’s foreign exchange reserves surged by $79.25 billion.

Currency experts do not rule out the fact that the Indian rupee may touch 85 against the US Dollar by the end of this month. While, the central bank will continue to defend rupee and restrict it from the sharp fall.