The Indian rupee dropped to a record low on Tuesday, falling to 84.85 per U.S. dollar, surpassing its previous all-time low of 84.7575 set last week. Government bond yields also declined, with the 10-year bond yield falling 2 basis points to 6.6954%. Traders speculated that the Reserve Bank of India (RBI) intervened to support the rupee.
The decline in the rupee came after the appointment of Sanjay Malhotra, the current revenue secretary to the finance ministry, as the new RBI governor. He will take office on December 11 for a three-year term, succeeding Shaktikanta Das, whose six-year term ends on Tuesday. Economists believe that Das’s departure could lead to a more dovish monetary policy, as Das and RBI Deputy Governor Michael Patra were seen as the most hawkish members of the rate-setting panel. Patra’s term ends in mid-January, and the government is looking for a replacement.
Malhotra’s appointment comes at a time when India’s economic growth has slowed, and inflation remains high, making monetary policy more complex. Anshul Chandak, head of treasury at RBL Bank, noted that Malhotra’s appointment could signal a shift towards supporting growth, which has influenced bond yields.
The market now expects a rate cut by the RBI in February, particularly after the central bank kept interest rates unchanged on December 6 but eased conditions by cutting the cash reserve ratio. A more growth-focused monetary policy could narrow interest rate differentials, potentially weakening the rupee, with traders predicting it may fall to 86 by March 2025.
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