The rupee sank to record lows on Monday, weighed down by a stronger greenback globally and unrelenting outflows from foreign portfolio investors (FPIs). The Indian currency rappelled down to a historic intra-day low of 77.58 before closing at 77.53 — also a record low.

Analysts have forecast the rupee to touch 78 to the dollar. Much will depend on how the Reserve Bank of India (RBI) intervenes in the market.

The Indian central bank has maintained it is opposed to a particular level for the rupee and its intention is to remove excess volatility.

The RBI has leveraged the country’s stockpile of forex reserves to sell dollars that stemmed the fall in the rupee. Latest data by the RBI shows the reserves dipping below a key threshold to $597.73 billion.

Traders said on Monday the US dollar index, which measures its strength against a basket of six currencies, spurted to a near two-decade high of 104.

Persistent dollar sales from FPIs also contributed to the depreciation of the rupee. Provisional data from the stock exchanges on Monday showed the FPIs sold shares worth Rs 3,362 crore.

The rupee opened lower on Monday at 77.17 against the greenback, and hit an intra-day low of 77.58. It remained under pressure through the session and finally settled at 77.53, a loss of 49 paise from the previous close of 76.92. Sources said that though the RBI was seen intervening in the markets, it was not strong enough to lift the rupee.

“India has witnessed FPI outflow of $5.8 billion (till date this financial year). Given the uncertainty and limited RBI intervention, the rupee could trend towards 78 levels in the immediate near term. We expect the new rupee near term range of 76.50-78,’’ Upasna Bhardwaj, senior economist, Kotak Mahindra Bank, said.

Equities volatile

The stock markets witnessed heavy volatility on Monday. Slipping for the second straight session, the 30-share BSE Sensex shed 364.91 points, or 0.67 per cent, to close at 54470.67. During the day, it tanked over 900 points to 53918.02. Similarly, the NSE Nifty tumbled 109.40 points, or 0.67 per cent, to end at 16301.85.

Centre steps in

The Centre asked the RBI to either buy back government bonds or conduct open market operations to cool yields that have hit their highest since 2019, a source said.

The 10-year benchmark bond ended at Rs 93.69 on Monday, yielding 7.46 per cent, after earlier reaching a high of 7.49 per cent. “The discussion with the RBI (Reserve Bank of India) is at an advanced stage as current yields are not at comfortable levels,” the government official, with direct knowledge of the matter, said on condition of anonymity.

The official said the government expected the RBI to conduct a switch operation, offering investors a chance to exchange their short-dated bonds for debt with a longer maturity, or to buy back government bonds within the next two weeks.

The official said the RBI would take a decision on the timing and size of any bond purchases next week.

The RBI and the finance ministry did not immediately respond to messages seeking comment.

The request from the government could complicate the central bank’s policy of withdrawing liquidity from the market, which marks a shift away from the ultra-loose monetary stance it took during the pandemic.

New Delhi also expects the RBI to intervene in the rupee market to contain volatility after the currency closed at its lowest level of 77.53 against the dollar, the government official said.

(With inputs from Reuters)