By Jaspreet Kalra
MUMBAI (Reuters) -The Indian rupee hit a lifetime low on Thursday, pressured by a rise in U.S. bond yields and strong dollar bids in the non-deliverable forwards (NDF) market while the central bank likely stepped in to cap losses, traders said.
The rupee declined to 85.93 per U.S. dollar, weakening past its previous record low of 85.8575 hit in the last session. The currency was at 85.92 as of 9:45 a.m. IST.
State-run banks were spotted offering dollars, most likely on behalf of the Reserve Bank of India, which helped limit the rupee’s losses, four traders told Reuters.
The RBI is “active as usual”, which should help the rupee stay above the 86 handle in the near-term, a trader at a private bank said.
The dollar index was at 109 after rising 0.3% on Wednesday while Asian currencies were mixed.
The 10-year U.S. Treasury yield hit a peak of 4.73% on Wednesday, its highest since April 2024, before edging lower in Asia trading.
Expectations of cautious rate cuts by the Federal Reserve amid the potential inflationary impact of incoming U.S. President Donald Trump’s policies have pushed up the dollar and U.S. bond yields over recent weeks.
Uncertainty about Trump’s policies has clouded the economic outlook with U.S. central bank officials raising new inflation concerns, the minutes of the Fed’s December meeting released on Wednesday showed.
“With Trump’s tariffs arriving at the outset of his second term in less than two weeks, amid a resilient U.S. economy compared to a lacklustre Chinese economy and stagnation in the Eurozone, the FOMC minutes should support the case for the USD to extend its Trump Trade rally into this year,” DBS Bank said.
Meanwhile, dollar-rupee forward premiums surged with the 1-year implied yield rising to 2.74%, its highest level since October 2022.
The rise in forward premiums came on the back of a persistent arbitrage between dollar-rupee outright and non-deliverable forwards, traders said.
(Reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala)
