Rupee Hits Record Low of 86.59 Against US Dollar Amid Global and Domestic Pressures
Mumbai: The Indian rupee witnessed its steepest fall in nearly two years, plunging 55 paise to reach an all-time low of 86.59 against the US dollar during mid-session on Monday. The sharp depreciation was driven by a combination of strengthening of the US dollar, surging crude oil prices, and significant foreign capital outflows from Indian equities.
At the interbank foreign exchange market, the rupee opened at 86.12 and further tumbled to its historic low of 86.59 before paring some losses to trade at 86.50, down by 46 paise from its previous close. This one-day decline of 55 paise, or 0.65%, marks the steepest fall since February 6, 2023, when the currency had dropped by 68 paise.
The rupee’s performance over the past two weeks has been troubling, shedding more than Re 1 from its closing level of 85.52 on December 30, 2024. On Friday, the currency declined by 18 paise to settle at 86.04, following a marginal gain of 5 paise the previous day. Analysts attribute this decline to the relentless demand for the US dollar, exacerbated by:
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- Foreign Institutional Investor (FII) Outflows: FIIs offloaded Indian equities worth ₹2,254.68 crore on Friday, contributing to a total withdrawal of ₹22,194 crore in January 2025 alone.
- US Dollar Strength: The dollar gained strength following better-than-expected job growth in the US, fueling expectations of slower interest rate cuts by the Federal Reserve. This also pushed benchmark treasury yields higher, with 10-year US bond yields reaching 4.78%, the highest since October 2023.
- Rising Crude Oil Prices: Brent crude surged by 1.42%, trading at $80.92 per barrel, amid new US sanctions on Russia and broader geopolitical concerns.
- Domestic Economic Conditions: Despite a positive Industrial Production (IIP) growth rate of 5.2% in November 2024 due to festive demand, concerns over dwindling forex reserves weighed on investor sentiment.
Forex analysts suggest the Reserve Bank of India (RBI) may adopt a measured approach to stabilizing the rupee while balancing currency reserves. Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, commented, “RBI will allow the rupee’s weakness to persist as demand for dollars rises and supply dwindles.”
The RBI’s foreign exchange reserves fell by $5.693 billion to $634.585 billion as of January 3, highlighting challenges in managing currency volatility.
In domestic markets, the rupee’s depreciation caused significant sell-offs in equities. The BSE Sensex fell sharply by 917.30 points, or 1.19%, to 76,461.61, while the NSE Nifty dropped 307.40 points, or 1.31%, to 23,124.10.
The dollar index, which measures the greenback’s strength against six major currencies, rose by 0.11% to 109.60, its highest in over two years. This rise reflects the global preference for the dollar as a safe-haven currency amid economic uncertainties.
While India’s manufacturing and industrial output showed promising signs of recovery, the rupee’s performance remains under pressure from global headwinds and domestic challenges. Experts predict further volatility, with the rupee likely to stay weak in the near term unless significant corrective measures are undertaken.
The government and the RBI face critical challenges in navigating this period of currency instability, managing inflationary pressures due to higher import costs, and sustaining economic growth momentum amidst global economic uncertainties.
