Indian rupee in freefall? Why it keeps hitting record lows
What's the story
The Indian rupee has witnessed a record fall against the US dollar, hitting an all-time low of 85.21 on Tuesday. This is the six straight session of decline for the currency. The fall is due to rising US bond yields and strong dollar demand from importers. Despite RBI's efforts to stem the losses, underlying issues like tepid capital flows and widening trade deficit continue to weigh on the currency.
Market response
RBI's intervention and market reactions
The rupee closed Tuesday's trading session at 85.20 against the US dollar, down 0.1% for the day. The RBI's intervention, probably through dollar sales, helped contain the losses, traders said. However, one state-run bank trader said, "RBI doesn't seem to be defending any level right now but is just curbing volatility," suggesting steady rupee depreciation may continue in the future.
Influencing factors
Factors contributing to rupee's depreciation
The rupee's fall was also aided by a strong dollar against major overseas currencies and weak domestic equities. Analysts have noted that increased dollar demand due to month-end payment obligations and fears of aggressive import tariffs by the US have strengthened the greenback. Rising crude oil prices have also pushed down the rupee.
Expert view
Analyst's perspective on rupee's depreciation
Anuj Choudhary, a Research Analyst at Mirae Asset Sharekhan, blamed weak domestic markets and a strong US dollar on the rupee's fall. He said increased demand from importers and rising crude oil prices have strengthened the dollar. A hawkish tone of the US Federal Reserve and improved US economy may further support the dollar, Choudhary said. "FII outflows may also weigh on the rupee. However, any intervention by the RBI may support the rupee at lower levels," Choudhary said.
Global impact
Global market trends impacting rupee's value
The dollar index, which measures the greenback's strength against six currencies, was trading higher by 0.11% at 107.93 amid soaring US Treasury yields and fears of delayed interest rate cuts by the US Federal Reserve. Brent crude, the global oil benchmark, rose 0.69% to $73.13 per barrel in futures trade. These global market trends have significantly impacted the value of the Indian rupee against the US dollar.