The currency weakened to 91.7 against the dollar, a move Kotecha attributed to a surge in pent-up demand for the greenback.
Dollar demand had intensified to a point where it “really just forced Dollar-INR much sharply higher,” he said. This was compounded by heavy and persistent equity outflows from foreign portfolio investors (FPIs), which totalled over $3.4 billion in January alone. While bond inflows have been supportive, they have not been sufficient to offset the equity selling pressure.
Additional pressure has come from continued dollar demand from importers and from the maturity of non-deliverable forwards (NDFs).
Kotecha also highlighted the role of momentum-driven investors, suggesting that commodity trading advisors (CTAs) may have contributed to their long Dollar-INR positions, thereby amplifying the move.
Crucial level to watch
While 91.80 to a dollar is being closely watched, “The reality is psychologically 92 is a big level,” Kotecha said, adding that breaches of such levels can trigger sharp and accelerated moves, as seen when the pair crossed 91.
Despite the pressure, Kotecha stressed that the situation is far from a crisis. India’s balance of payments remains in “reasonable shape”, and the pressures are “much more controllable” than in past episodes, he said.
Also Read: Rupee could slide to 92.5-93 per dollar if pressure persists: ANZ’s Dhiraj Nim
He stated that the Reserve Bank of India (RBI) has a wide range of tools to manage volatility, including moral suasion, regulatory actions, raising external commercial borrowing (ECB) limits, and direct intervention in the spot, forward, or NDF markets using its substantial foreign exchange reserves.
Also Read: UBS explains why the rupee’s troubles may not be over yet
Kotecha said easing global market nervousness, following news of no new US tariffs on Europe, could offer some near-term support to Asian currencies. However, he cautioned that the broader direction of the US dollar, which has begun to rebound, will remain the key driver of the rupee’s near-term trajectory.
For the entire interview, watch the accompanying video
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