In the early hours of trading, the Indian rupee experienced a notable decline, falling by 27 paise to an unprecedented low of 86.31 against the US dollar. This drop continues a troubling trend for the currency, which had already lost 27 paise in the previous trading session.
The rupee opened at 86.12 but quickly plummeted to its record low, highlighting the ongoing challenges it faces in a volatile global market and a strengthening US dollar. The depreciation from its last closing value of 86.04 reflects the adverse conditions impacting the rupee.
Forex analysts attribute the rupee’s downward spiral to a combination of rising crude oil prices, persistent outflows of foreign capital, and bearish trends in domestic equity markets. These elements are collectively exerting significant pressure on the Indian currency.
The robust performance of the US dollar, bolstered by unexpectedly strong job growth figures in the United States, has further contributed to the rupee’s struggles. This positive economic data has ledTreasury yields, raising speculation that the Federal Reserve may slow its pace of interest rate cuts.
Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, commented on the situation, stating, “The rupee has reached a fresh record low of 86.40 as the Reserve Bank of India (RBI) intervenes. The reasons include favorable US economic data, rising US yields, and a stronger dollar index.
Additionally, President Biden’s new sanctions on Russia have pushed Brent crude oil prices above $81. The rupee has hit 86 well ahead of January and is on a gradual path towards 86.50. The RBI seems to be allowing this weakness as demand increases while supplies dwindle. We will need to monitor developments over the next week, particularly regarding Trump’s actions and statements.”
The international oil benchmark, Brent crude, saw a 1.44 percent increase, reaching $80.91 per barrel. This rise in oil prices adds to the inflationary pressures currently affecting the rupee. On the domestic front, major stock indices also faced significant declines.
The BSE Sensex dropped by 0.71 percent, losing 550.49 points to close at 76,828.42, while the Nifty fell by 0.78 percent, shedding 182.45 points to finish at 23,249.05. These losses in the stock market reflect broader economic concerns that are negatively impacting the rupee’s value.
Compounding the rupee’s challenges, foreign institutional investors withdrew a net amount of Rs 2,254.68 crore from the capital markets. This outflow signals the difficulties currently facing the Indian financial market, further dampening investor sentiment towards the rupee.
Additionally, the RBI reported a decline in the country’s foreign exchange reserves, which fell by $5.693 billion, bringing the total to $634.585 billion for the week ending January 3.
Despite these significant hurdles, there are signs of potential recovery. Recent government data revealed that industrial production growth accelerated to 5.2 percent year-on-year in November 2024. This increase is largely attributed to heightened festive demand and a revival in the manufacturing sector, suggesting that there may be room for economic resilience amidst the prevailing challenges.
As the rupee continues to navigate these turbulent waters, market participants are closely watching for any developments that could influence its trajectory. The interplay of global economic conditions, domestic market performance, and government policy will be crucial in determining the future strength of the Indian currency.
