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New Delhi, 30 March. The Indian rupee fell below the 95 level against the US dollar for the first time on Monday, hitting a record low. This happened after the Reserve Bank of India (RBI) had recently taken several steps to curb volatility.

The Indian currency fell 0.3% to 95.22 per dollar due to increasing pressure from global factors and continuous foreign capital outflow. However, in volatile trade, the rupee closed seven paise higher at 94.78 (provisional) per dollar against the American currency.

The RBI’s move to tighten limits on banks’ forex positions provided only temporary support to the rupee. Analysts say the underlying factors still remain unfavorable for the currency.

rbi Steps failed to stop the gains

Late on Friday night, the RBI directed banks to limit their net open rupee positions in the foreign exchange market to $100 million by the end of every trading day. Banks have been asked to follow this rule till April 10.

The purpose of this step is to reduce speculative positions in the currency market and limit fluctuations. Following this directive, banks are expected to sell dollars in the domestic market while ending the existing arbitrage trades. These trades involved buying dollars in the onshore market and selling them in the non-deliverable forward (NDF) market to take advantage of the price difference between the two segments.

The gap between onshore and NDF markets had widened sharply in recent weeks due to increased volatility driven by risk aversion and higher oil prices linked to the Iran war. The size of these arbitrage positions is estimated to be between $25 billion and $50 billion.

Why is the rupee under pressure??

Despite RBI intervention, the rupee remains under pressure. This currency has been adversely affected due to continuous outflow of foreign portfolio and growing concerns about India’s economic future, as oil prices still remain high.

Higher crude oil prices increase India’s import bill and the current account deficit (CAD) also increases, putting pressure on the rupee. Additionally, global uncertainty caused by geopolitical tensions has reduced risk appetite among investors, leading to even more money flowing out of emerging markets like India.

This weakness in the rupee is being seen along with the huge fall in the stock markets. Nifty 50 fell 2.14% on Monday and was on track for its biggest monthly decline since March, 2020. The combined effect of falling currency, rising oil prices and global uncertainty has kept the overall market environment weak.

During the month of March in rupees 4% decline of more than

The rupee has fallen by more than 4% so far in the month of March, taking it towards its worst monthly performance in more than seven years. Experts say that unless there is a clear softening in oil prices or the inflow of foreign funds does not return, there is a possibility that the rupee will remain under pressure in the coming times.