Mumbai, July 25: The rupee dropped by 7 paisa to close at an all-time low of 83.78 against the US dollar on Thursday, dragged down by month-end dollar demand and foreign fund outflows. Forex traders said foreign fund outflows from Indian equities following the government's decision to hike the tax rate on capital gains weighed on the local currency.

Analysts said the RBI, which was keeping the rupee steady by two-way support, may allow the rupee to weaken slightly to unwind the slightly real effective exchange rate and keep the currency competitive. At the interbank foreign exchange market, the local unit opened at 83.72 and touched an intra-day high of 83.66 and a low of 83.78 against the dollar during the session. INR vs USD: Rupee Falls 1 Paisa To Close at All-Time Low of 83.72 Against US Dollar.

It finally settled at record closing low level of 83.78 against the American currency, down 7 paisa from the previous close. On Wednesday, the rupee closed at 83.71 against the US dollar. The local unit appreciated slightly during the intra-day trade on supposed intervention by the Reserve Bank of India (RBI) and overall weakness in crude oil prices, said Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas.

Forex outflows from Indian equities due to the government's decision to hike the tax rate on capital gains dragged rupee to all time lows, dealers said. Month-end dollar demand also weighed on the local currency. In the domestic equity market, the 30-share BSE Sensex fell 109.08 points, or 0.14 per cent, to settle at 80,039.80 points, and Nifty dropped 7.40 points, or 0.03 per cent, to 24,406.10 points. INR vs USD: Rupee Slips to All-Time Low of 83.72 Against US Dollar in Early Trade.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 104.17, lower by 0.21 per cent. Brent crude futures, the global oil benchmark, fell 1.79 per cent to USD 81.25 per barrel. Foreign institutional investors (FIIs) were net sellers in the capital markets on Thursday as they offloaded shares worth Rs 2,605.49 crore, according to exchange data.

According to Bank of America, the RBI may allow the rupee to weaken slightly to unwind the slightly real effective exchange rate and keep the currency competitive. It will support the government's ambitions for attracting large-scale manufacturing investments.

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