Rupee Falls to All-Time Low of 85.80 Against US Dollar Amid Market Turmoil
Mumbai, Dec 27 (PTI): The Indian rupee recorded its sharpest single-day decline in six months, plummeting by 53 paise to hit a new all-time intraday low of 85.80 against the US dollar during Friday’s mid-session. The steep fall comes as rising US bond yields boosted the dollar’s appeal globally, overshadowing positive trends in domestic equity markets.
Factors Behind the Steep Decline
- Foreign Investors’ Exit:
Despite gains in the domestic equity markets, foreign institutional investors (FIIs) continued their selling spree. Analysts attribute this to lower valuations in other Asian markets, which have become more attractive for global investors. This capital flight from Indian equities further pressured the rupee. - Rising Crude Oil Prices:
The surge in global crude oil prices added to the rupee’s woes, increasing India’s import bill and creating additional strain on the currency. Brent crude futures rose slightly by 0.07% to USD 73.31 per barrel, amplifying concerns about inflation and fiscal health. - Dollar Liquidity Crunch:
According to Amit Pabari, Managing Director of CR Forex Advisors, the Reserve Bank of India (RBI) holds USD 21 billion in short-side forward contracts set to mature in December and January. Market speculation suggests the central bank has not rolled over these maturing forwards, creating a scarcity of dollars and an oversupply of rupees. This imbalance has significantly propelled the USD-INR pair toward the record-low level of 85.8075. - US Dollar Strength:
The dollar index, which measures the greenback’s strength against a basket of six major currencies, edged higher by 0.08% to 107.98. The rise was supported by soaring US Treasury yields, with the 10-year bond hovering around 4.50%, making the dollar an attractive investment option for global investors.
Intraday Trading Details
The rupee opened on a weak note at 85.31 at the interbank foreign exchange market and slid to its lowest-ever level of 85.80 during mid-session. By the afternoon, it recovered slightly but was still trading at 85.69, marking a loss of 42 paise.
This decline represents the steepest single-day fall since March 22, 2024, when the rupee fell by 48 paise. The previous sharpest decline was recorded on February 2, 2023, with a 68 paise drop.
The rupee had already been under pressure earlier this week, declining by 12 paise on Thursday and 13 paise over the previous two sessions.
Domestic Market Performance
On the equity front, the Indian stock markets showed resilience despite the rupee’s decline. The Sensex rose by 319.93 points (0.41%) to 78,792.41, while the Nifty gained 89.60 points (0.38%) to close at 23,839.80.
However, FIIs were net sellers on Thursday, offloading shares worth ₹2,376.67 crore, according to exchange data.
Broader Economic Implications
The rupee’s continuous fall poses challenges for India’s economy:
- Higher Import Costs: The depreciation increases the cost of imported goods, particularly crude oil, which could widen the trade deficit and put pressure on inflation.
- Corporate Borrowing: Companies with unhedged dollar-denominated borrowings may face higher repayment costs, affecting profitability.
- Policy Dilemma: The RBI may be compelled to intervene in the forex market to stabilize the rupee, potentially using foreign exchange reserves, which could deplete the buffer further.
Global Market Context
The rupee’s fall mirrors broader emerging market trends, as a stronger dollar and higher US Treasury yields have pulled investments away from riskier assets. The Federal Reserve’s hawkish stance on interest rates has fueled the dollar rally, creating headwinds for currencies like the rupee.
Outlook
The path ahead for the rupee depends on multiple factors, including the RBI’s interventions, global crude oil price trends, and the trajectory of US Treasury yields. While the domestic equity market continues to show strength, the persistent foreign outflows and macroeconomic pressures are likely to weigh on the rupee in the near term.
In conclusion, the rupee’s record low underscores the need for robust fiscal and monetary measures to mitigate external shocks and maintain financial stability.
