Rupee Hits Historic Low of 86.62 Against the US Dollar: A Closer Look
On January 13, 2025, the Indian rupee recorded its sharpest single-day fall in nearly two years, closing 58 paise lower at an unprecedented low of ₹86.62 against the US dollar. This historic drop has sparked widespread concern across financial markets, driven by both global and domestic pressures.
Intraday Movement
- The rupee opened at ₹86.12 and briefly touched an intraday high of ₹86.11 before tumbling to its lowest-ever closing level of ₹86.62.
This marks a significant depreciation of over ₹1 in just two weeks, compared to its closing level of ₹85.52 on December 30, 2024.
Recent Trends
The rupee has faced a consistent downward trajectory in the past month:
- December 19, 2024: Breached the ₹85-per-dollar mark, reflecting heightened market volatility.
- December 30, 2024: Closed the year at ₹85.52, a grim end to an already challenging year.
Last week added further pain to the rupee's slide:
- Friday, January 10, 2025: The rupee ended at ₹86.04, losing 18 paise.
- Tuesday to Thursday, January 7-9, 2025: Cumulative losses of 28 paise, showing no signs of reversal.
Why is the Rupee Falling?
Several factors are behind this sharp depreciation:
Strengthening US Dollar:
The dollar index has risen amid strong US economic data and hawkish Federal Reserve policy. This has led to capital outflows from emerging markets like India.Surging Crude Oil Prices:
Brent crude recently crossed the $90 per barrel mark, putting immense pressure on India’s trade deficit as a major oil importer.FII Outflows:
Foreign Institutional Investors (FIIs) have been net sellers in Indian markets, further weakening the rupee.Geopolitical Tensions:
Persistent global trade and geopolitical uncertainties have dampened investor sentiment, impacting emerging markets.
Expert Commentary
Radhika Rao, Economist at DBS Bank:
“The rupee's record low reflects external challenges, primarily a stronger dollar and rising crude prices. However, domestic vulnerabilities like a widening current account deficit amplify the pressure.”
Sonal Varma, Chief Economist at Nomura India:
“The Indian currency is underperforming compared to its regional peers, signaling structural issues like limited export growth and high dependence on imports.”
Ashutosh Khanna, Currency Strategist:
“The RBI’s interventions have been sporadic, but sustained dollar demand from importers and rising oil prices leave little room for effective control.”
Comparison with Other Emerging Market Currencies
The rupee's performance in recent weeks is worse than many of its emerging market counterparts:
- Turkish Lira: While the lira also faced pressure, its depreciation was less steep, thanks to aggressive central bank action.
- Brazilian Real: The real has gained some stability due to rising commodity exports.
- South African Rand: The rand saw minor fluctuations but avoided steep declines as gold prices, a major export, remain strong.
India’s dependence on oil imports and high fiscal deficit are key differentiators, exposing the rupee to sharper vulnerabilities compared to these nations.
Implications and Outlook
- Import Costs: A weaker rupee makes imports costlier, particularly crude oil, adding to inflationary pressures.
- Corporate Impact: Companies with dollar-denominated debt face higher repayment costs.
- Inflation Risk: Rising input costs could translate into higher prices for consumers, affecting overall economic stability.
Looking ahead, analysts suggest that the rupee may remain under pressure unless crude oil prices stabilize and the RBI intervenes more aggressively. While India’s foreign exchange reserves provide some buffer, market conditions may demand more proactive measures.
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