The Indian rupee hit a record low against the US dollar on Monday, sinking to an alarming new low of 84.3875 in early trading. This marked a further deterioration of the rupee’s value, surpassing its previous record low set just last Friday. By 9:40 a.m., the currency was still trading at 84.37, continuing its downward spiral. The rupee’s woes are primarily being fueled by concerns surrounding the recent victory of Donald Trump in the US elections, which has boosted the US dollar and put increasing pressure on Asian currencies, including the Indian rupee. The global strengthening of the dollar, alongside an ongoing capital outflow from Indian stocks, has exacerbated the rupee’s decline, triggering caution and uncertainty in financial markets both domestically and internationally.
The Reserve Bank of India (RBI) has been actively intervening in the forex market to try to stem the rupee’s slide. Reports from traders indicate that state-run banks have been selling dollars, possibly on behalf of the RBI, to reduce the impact on the rupee. These interventions, which are aimed at curbing the currency’s depreciation, have been necessary to avoid a sharper decline. However, such measures come at a considerable cost. India’s foreign exchange reserves, which act as a buffer against global economic uncertainties, have now fallen to a two-month low of $682.13 billion as of November 1. This marks the fifth consecutive week of declines in the reserves, suggesting that while the RBI’s interventions provide short-term relief, they are not sustainable in the long term without further global or domestic shifts.
One of the key factors driving the rupee's depreciation is the strength of the US dollar, which remains near its four-month high of 105 on the US dollar index. The index, which tracks the dollar’s performance against a basket of major global currencies, has been bolstered by Trump’s election victory. The resulting strengthening of the dollar has placed significant pressure on emerging market currencies like the rupee, which tend to suffer when the dollar rises. This global trend has left the rupee in a vulnerable position, and its ongoing decline has been amplified by investor apprehension regarding Indian stocks.
In addition to the pressure from the dollar’s strength, India is also experiencing substantial capital outflows. Foreign investors have been offloading Indian equities at an alarming rate. In November alone, net outflows from Indian stocks have amounted to approximately $2.5 billion, following a massive outflow of $11 billion in October. These outflows reflect investor concerns about the Indian market’s performance amid global volatility. The continued capital flight is one of the main reasons why the rupee has been under such sustained pressure. India’s stock market, as measured by major indices like the BSE Sensex and Nifty 50, showed minimal movement on Monday, continuing a pattern of declines over the past several weeks. This reflects the overall lack of investor confidence and the broader market challenges, including the weakening of the rupee.
The situation remains precarious, with experts suggesting that the rupee could stay weak unless there is a shift in global conditions, particularly a softening of the dollar index or a reduction in foreign institutional investor (FII) outflows. Amit Pabari, Managing Director at CR Forex, explained to Reuters that the rupee is likely to remain under pressure unless there is either a reversal in the dollar’s strength or a slowdown in the outflow of foreign capital from India. This outlook implies that the rupee may continue to struggle in the coming weeks if these conditions do not change.
In addition to these external factors, India's broader economic outlook is also contributing to the rupee’s decline. As the currency weakens, inflationary pressures could rise, making it more expensive for Indian consumers and businesses to purchase imports, potentially driving up costs across the economy. Moreover, the declining value of the rupee could discourage foreign investment in India, as investors may be wary of additional volatility and potential losses caused by the rupee’s slide.
The Indian government and the RBI are likely to continue their efforts to stabilize the currency and mitigate the economic impacts of the rupee’s weakness. However, unless the global dollar strength weakens or investor sentiment towards India improves, the rupee may continue to face challenges. As the country grapples with these economic pressures, there are growing concerns over how the situation will evolve in the coming months, particularly as the impact of the US election and Trump’s policies continue to shape global economic trends.
In the short term, market experts predict that the RBI will maintain its intervention strategy to curb the rupee’s depreciation, but longer-term stability will likely depend on broader global developments. It is clear that India’s currency and equity markets are at a crossroads, and much depends on whether the global economic landscape shifts or whether foreign capital begins to flow back into Indian markets. Until then, the rupee’s position remains fragile, and India will need to carefully navigate these turbulent times in the global economy.
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