The Indian rupee hit a historic low against the US dollar on Thursday, slipping past the 85 mark for the first time, following the US Federal Reserve’s indication of limited rate cuts in 2025. The rupee weakened by 12 paise, reaching 85.0675 against the dollar, reflecting a consistent decline over recent months.
The dollar index, which measures the greenback against six major currencies, remained strong at 108.03, near its two-year high of 108.27. This strength has pressured emerging market currencies, including the Indian rupee.
Why is the Indian Rupee Falling?
The rupee’s slide from 84 to 85 has occurred over just two months, compared to the 14-month duration it took to move from 83 to 84. Factors driving this rapid depreciation include the Federal Reserve’s hawkish stance, revisions to key economic projections, and the strength of the US dollar.
Amit Pabari, MD of CR Forex Advisors, explained, “The surge in the dollar index and US bond yields has created headwinds for emerging market currencies, including the rupee. However, IPO inflows and potential interventions by the Reserve Bank of India (RBI) might provide some support, stabilizing the rupee around 85.20.”
Impact on Markets
The hawkish tone from the US Fed also rattled global markets, with Wall Street indices dropping up to 3% on Wednesday. Indian equity indices, Sensex and Nifty 50, mirrored the decline, both falling by over 1% during Thursday’s trading session.
Outlook for the Rupee
In the short term, experts predict the rupee to trade in a range of 84.70 to 85.20. However, structural issues like twin deficits, weak exports, and sustained dollar strength continue to challenge the rupee.
Riya Singh, Research Analyst at Emkay Global, noted, “RBI interventions may limit volatility, but rising global interest rates and domestic challenges make the rupee vulnerable. The USD/INR pair could face further depreciation towards 85.18–85.35 unless support levels at 84.50 are breached.”
Market watchers now await the Bank of England’s policy decision, which could potentially ease the dollar’s strength if a neutral stance is adopted.