Rupee plunges further, dips past record 81.55 to a dollar

Despite the deficit, forex reserves fell by another $5.22 billion to $545.65 billion as of 16 September. Analysts says the decline was after the RBI used reserves to curb rupee volatility. In the last one year, RBI used $100 billion forex reserves to defend the rupee. However, it still depreciated over 8.22 percent this year.

"Given the global backdrop of a strong dollar and continued weakness in other currencies, it seems likely that the RBI may not be as aggressive as in the past to curb the decline in the exchange rate. Hence, we may see the rupee depreciating further, and a move closer to 82 to a dollar cannot be ruled out. Everything depends on what the RBI does and absence of active intervention will be interpreted as the present range around 81 a dollar being acceptable," said Bank of Baroda in a note.

Last week, the Federal Reserve raised its policy interest rates by 75 bps at its latest monetary policy meeting while also signalling that more large increases are on the anvil and the likelihood for rates to stay higher for longer.

"Currency market players want an early dose of injection to calm down the shaky nerves. However, further strength in the USD globally could not keep the Rupee trading at an exceptionally fine. Overall, we expect the USDINR pair to remain volatile with downside support at 80.50 and strong bullish momentum could not rule out 82.50 levels on the upside," said CR Forex in a note to investors.

All eyes are now on the next Reserve Bank of India's bi-monthly policy where many analysts expect it may go for a 50 basis points hike. The RBI announcement will be on 30 September and the latest minutes shows a hawkish tone which analysts expect more hikes in the offing.

"The stance of ‘withdrawal of accommodation’ suggests that benchmark rates are not yet at neutral levels. Most members agreed that despite signs of a cool-off in price pressures due to correction in commodity prices, it was premature to go easy on the inflation fight given considerable uncertainties from geopolitical risks and hard landing risks in major economies. Resilience in domestic growth was a source of confidence but spillovers from global risks were under watch," said Radhika Rao, economist at DBS Bank.

Among Asian currencies, South Korean won was down 1.4 percent, Taiwan dollar fell 0.6 percent, Thai Baht 0.59 percent, Philippines peso 0.57 percent, Indonesian rupiah 0.53 percent, China Renminbi 0.53 percent, Japanese yen 0.47 percent, China Offshore 0.45 percent, Malaysian ringgit 0.44 percent, Singapore dollar 0.3 percent.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 113.97, up 0.68 percent from its previous close of 113.192.