Rupee Rebounds 21 Paise from Record Low to ₹86.49 Against US Dollar Amid Crude Oil Decline
In early trade on Tuesday, the Indian rupee rebounded from its all-time low, appreciating by 21 paise to ₹86.49 against the US dollar. This recovery comes as the American currency softened and global crude oil prices eased, providing much-needed relief to the Indian currency after a steep fall the previous day.
Market Opening Details
At the interbank foreign exchange, the rupee opened at ₹86.57 but quickly regained momentum to trade at ₹86.49 against the US dollar. This marked a 21 paise improvement over its previous close of ₹86.70 on Monday, which had been the rupee’s steepest single-day decline in nearly two years.
Forex traders cited easing crude oil prices, positive inflation data, and a partial recovery in domestic equity markets as key factors supporting the rupee’s recovery. However, persistent foreign fund outflows continued to weigh on sentiment.
Monday’s Steep Decline: A Historic Low
On Monday, the rupee’s faced its sharpest single-day fall since February 2023, tumbling 66 paise to close at a record low of ₹86.70 against the greenback. This marked a significant setback for the Indian currency, as it had been under sustained pressure for several weeks.
- The last comparable single-day decline occurred on February 6, 2023, when the rupee dropped 68 paise in a session.
- Over the past two weeks, the rupee has depreciated by more than ₹1, dropping from its December 30 closing level of ₹85.52.
The Indian currency also broke psychological resistance levels, having breached the ₹85-per-dollar mark for the first time on December 19, 2024.
Key Influences on the Rupee’s Performance
1. Dollar Index and Global Currencies
The dollar index, which measures the greenback’s strength against a basket of six major currencies, was trading 0.37% lower at 109.41. A weaker dollar typically benefits emerging market currencies like the rupee’s, as it eases pressure on their exchange rates.
2. Crude Oil Prices
Global oil benchmark Brent crude dropped by 0.28% to USD 80.78 per barrel in futures trade. Lower crude oil prices reduce India’s import bill, as the country is a significant importer of oil. This alleviates some pressure on the rupee’s, which is sensitive to changes in crude prices.
3. Domestic Equity Market Recovery
In the domestic equity market, the BSE Sensex was trading 364.90 points higher at 76,694.91, while the Nifty gained 123.65 points to trade at 23,209.60. A strong recovery in equity markets generally boosts investor sentiment, supporting the rupee’s.
4. Inflation Decline
Government data released on Monday showed that retail inflation in December eased to a four-month low of 5.22%, primarily due to falling food prices. This was the second consecutive month of declining inflation and brought it below the Reserve Bank of India’s (RBI) upper tolerance level of 6%, breached in October. Lower inflation raises the possibility of the RBI adopting a more accommodative monetary policy stance in upcoming reviews, which could support economic growth.
5. Persistent FII Outflows
Despite positive domestic cues, foreign institutional investors (FIIs) continued to offload equities. On Monday, FIIs sold stocks worth ₹4,892.84 crore, exerting downward pressure on the rupee’s. Persistent FII outflows are a cause for concern, as they indicate reduced foreign investment in Indian markets.
A Brief Overview of Recent Performance
The rupee’s recent struggles are highlighted by its performance over the past week:
- On Friday, it closed at ₹86.04, a decline of 18 paise from the previous session.
- On Thursday, it gained marginally by 5 paise but was overshadowed by declines on Tuesday and Wednesday, when it fell by 6 paise and 17 paise, respectively.
This volatile trend reflects the rupee’s vulnerability to external factors like global currency movements, oil prices, and domestic market performance.
Economic Implications
The rupee’s depreciation has both direct and indirect effects on the economy:
- Higher Import Costs: A weaker rupee’s increases the cost of imports, particularly crude oil, which can add to inflationary pressures.
- Corporate Earnings Impact: Companies reliant on imports may see a rise in operational costs, affecting profit margins.
- Export Boost: On the flip side, a weaker rupee’s makes Indian goods more competitive in international markets, potentially boosting exports.
Market Expert Insights
Forex analysts believe that the rupee’s movement will continue to be influenced by a mix of global and domestic factors, including the direction of the dollar, oil price trends, and foreign fund flows. The easing inflation rate is a positive signal, but the outflow of foreign funds and concerns about global economic growth remain challenges.
Looking Ahead
Market participants are closely watching the following:
- RBI Monetary Policy Stance: The central bank’s upcoming policy reviews will be critical in determining the trajectory of the rupee’s.
- Global Economic Trends: The Federal Reserve’s interest rate decisions and global risk sentiment will significantly impact the dollar and, in turn, the rupee’s.
- Crude Oil Prices: Any major shift in crude oil prices could alter the rupee’s dynamics.
Conclusion
The Indian rupee’s 21-paise rebound to ₹86.49 against the US dollar brings temporary relief after its historic low of ₹86.70. Positive inflation data and easing crude oil prices have provided some stability, but persistent FII outflows and global uncertainties continue to pose risks. As markets adjust to evolving domestic and international factors, the rupee’s performance will remain a key focus for investors and policymakers alike.
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