Rupee Hits Record Low as Crude Prices Rise

On January 8, the Indian rupee experienced a notable decline, closing at an all-time low of 85.87 against the US dollar. This depreciation of 13 paise marked the second consecutive session of record lows for the currency. The rupee's plight is largely attributed to the surge in crude oil prices and the strengthening of the US dollar, both of which exert significant pressure on the Indian currency.

The rupee opened the day at 85.82 in the interbank foreign exchange market but quickly fell to an intra-day low of 85.89 before ultimately settling at 85.87. On the previous trading day, the currency had ended at 85.74, reflecting a loss of six paise.

Forex analysts point to various factors contributing to the rupee's depreciation. One major reason is the sustained outflow of foreign funds from Indian markets. Investors have shown caution following the government's recent downgrade of economic growth projections. The National Statistics Office (NSO) has revised the GDP growth estimate for 2024-25 to 6.4%, the lowest in four years, primarily due to lackluster performance in both manufacturing and services sectors.

Compounding the rupee's decline is the strength of the US dollar, which recently saw its index increase by 0.35% to reach 108.76. The dollar's resilience is further backed by increasing yields on 10-year US Treasury bonds, which have risen to 4.67%. These factors suggest that the anticipated rate cuts by the Federal Reserve may face delays, further bolstering the dollar.

Brent crude oil, a global benchmark, has also surged, rising 0.9% to trade at $77.74 per barrel. This increase raises concerns about India's import costs, which are heavily influenced by international oil prices.

The performance of domestic equity markets has done little to alleviate pressure on the rupee. The BSE Sensex fell by 50.62 points, closing at 78,148.49, while the Nifty index dropped 18.95 points to finish at 23,688.95. Additionally, foreign institutional investors (FIIs) remained net sellers, offloading a substantial Rs 1,491.46 crore in capital markets on Tuesday alone.

The rupee's ongoing weakness highlights the urgent need for policy measures to stabilize the currency amidst prevailing global economic uncertainties. Analysts are keenly monitoring upcoming data releases and policy announcements for indications of the future direction of the currency.

Rupee, Crude, Dollar