The Indian rupee declined to its lifetime low on Thursday as a dip in Asian peers added to the prevailing bearish outlook on the currency a day before a crucial monetary policy decision.
Uncertainty about US trade tariffs and persistent portfolio outflows have hurt the rupee over the last two months and made it the worst performing Asian currency in 2025.
The rupee declined to a record low of 87.5825 during the session before closing at 87.5775, down 0.1% on the day and more than 2% so far this year.
Short bets on the rupee have risen to their highest since mid-July 2022 even as the bearish outlook on other regional currencies has eased, according to a Reuters poll.
The 1-month 25 delta dollar-rupee risk reversal, a volatility gauge, has also ticked up, which signals that the cost of betting against the rupee via options has risen relative to the cost of wagering on its rally.
Heightened dollar bids spurred by frequent maturities of positions in the non-deliverable forwards market have also hurt the rupee while interventions by the central bank, like on Thursday, have helped limit the losses.
Reserve Bank of India also likely conducted dollar-rupee buy/sell swaps on Thursday, a measure it has deployed over recent trading sessions to mitigate the liquidity impact of its spot dollar sales.
The dollar index was up 0.3% at 108 after hitting a one-week low on Wednesday as investors digested the prospect of a global trade war being averted.
MUFG Bank said that U.S. President Donald Trump's decision to delay tariffs on Canada and Mexico has "made us cautiously more optimistic that a wider global tariff war can be avoided", which dampens the risk of his policies being inflationary for the U.S. economy.
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