The Indian rupee hit a record low against the dollar, closing at 84.38 per dollar, as foreign investors continue selling domestic equities and rising crude oil prices add further pressure. Thursday’s decline reflects investor caution ahead of the Federal Reserve meeting outcome, potentially driving further depreciation in the Indian currency.
As the US dollar rise gathers pace, largely due to high yields and economic expectations after the US presidential election, the Reserve Bank of India (RBI) has been cautiously allowing a gradual rupee depreciation. The decision aligns with similar trends in Asian currency movements, where regional currencies are losing ground against the dollar.
On Wednesday, the rupee previously touched a low of 84.28 after Republican candidate Donald Trump secured a significant victory in the US election, achieving a decisive win against Kamala Harris.
Manish Kachariya, Practicing Chartered Accountant and Founder of Edueasify explains,
“The RBI appears to have slowed down dollar sales due to rising US yields, expecting further FPI outflows in the coming months. With Asian currencies falling and the dollar gaining, maintaining a competitive Real Effective Exchange Rate (REER) for exports has become crucial.”
If the Federal Open Market Committee (FOMC) takes a more hawkish stance on rates or delays rate cuts, the rupee may decline further, possibly reaching 84.50 against the dollar. This gradual depreciation could help the RBI manage inflationary pressures while preserving export competitiveness.
The outlook on the US dollar is significantly impacted by the current economic policies. Trump’s US dollar policy is expected to drive the dollar higher due to his proposed tariffs and increased borrowing plans, potentially leading to a rise in inflation expectations.
Morgan Stanley notes that while former President Joe Biden supported a weaker dollar, Trump’s fiscal agenda could strengthen the USD, partly driven by geopolitical uncertainty and the risk of increased tariffs.
In recent sessions, the rupee’s 0.38% decline places it among the relatively stable Asian currencies, outpacing many peers despite market challenges. The Malaysian Ringgit saw the steepest decline, but India’s currency still ranks fifth among the region’s best performers.
With these shifts, consumers and investors in India may need to prepare for increased prices on imported goods and changes in the export landscape. For those holding dollar-denominated assets or planning overseas investments, understanding the factors influencing the Indian rupee’s depreciation can be key to making informed financial decisions.
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