Rupee weakens below 84.50/USD for first time ever on dollar strength, outflows
Updates headline and top two paragraphs to reflect the rupee's decline below 84.50
By Jaspreet Kalra
MUMBAI, Nov 22 (Reuters) -The rupee weakened below the psychologically important 84.50-per-dollar level to hit an all-time low on Friday as the greenback's post-U.S. election rally revived and as foreign investors continued to pull out of domestic equities and bonds.
The rupee INR=IN weakened to 84.5025, eclipsing the all-time low of 84.4925 hit on Thursday. It was at 84.4925 at 11:50 a.m. IST, little changed on the day.
The greenback's strength after Donald Trump's U.S. election victory and overseas investors pulling out over $4 billion from local equities and debt have hurt the rupee this month.
The dollar index rose to a peak of 107.18, its highest in over a year, and has rallied more than 3% since Trump's victory on Nov. 5 on bets that the President-elect's policies could reignite inflation and temper the future U.S. rate cuts.
The gains paused earlier in the week but restarted on Wednesday due to heightened geopolitical risks and after the Federal Reserve officials signalled caution on rate cuts.
The rupee, meanwhile, has weakened nearly 0.5% so far in November, although the Reserve Bank of India's routine interventions, including on Friday, have limited the decline. Its Asian peers have lost between 0.9% to 2.2% this month.
"A strong dollar continues to create a depreciating bias for currencies globally ... However, interventions by the RBI, supported by India's healthy foreign exchange reserves, should help keep rupee volatility in check," said Rajani Sinha, chief economist at CareEdge Ratings.
State-run banks were spotted offering dollars, on behalf of the RBI, with traders pointing "especially strong" offers near the 84.50 level.
At this point, "there is limited interest from interbank traders in selling dollars and very muted inflows, so the central bank will likely stay active to smoothen sharp moves," a senior trader at a state-run bank said.
While the RBI has said it aims to ensure the market is "liquid and deep and functioning in an orderly manner," the interventions have led to the rupee's overvaluation against the currencies of India's major trading partners.
Its 40-currency real effective exchange rate (REER), a measure of its competitiveness, shows the currency was overvalued by 7.21% at the end of October, RBI data showed.
Rupee has outperformed major Asian peers in November https://reut.rs/4eKk96q
Reporting by Jaspreet Kalra; Editing by Sonia Cheema and Savio D'Souza
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