Indian rupee in freefall, hits new all-time low of ₹90.43/dollar
What's the story
The Indian rupee hit another record low on December 4, opening at ₹90.43 against the US dollar. The fall extends a sharp depreciation streak after the currency crossed the key ₹90 level a day earlier. This rapid fall, representing a 5.5% depreciation since April 2, is the fastest ₹5 decline against the dollar in under a year, despite reported interventions by the Reserve Bank of India (RBI).
Market dynamics
Factors contributing to rupee's depreciation
The continued slump in the rupee is being driven by a mix of factors, including persistent foreign portfolio investor (FPI) outflows from domestic markets and a widening trade deficit caused by costly imports. Adding to the pressure are external uncertainties, such as concerns over a potential US-India trade deal and the sustained strength of the US dollar. Experts have also pointed out that limited intervention by the Reserve Bank of India (RBI) is putting further pressure on the currency.
Monetary policy
RBI's muted intervention and future predictions
Despite the rupee hitting fresh record lows on consecutive days, the RBI's intervention has remained muted, fuelling speculation of a potential surprise in the December 5 monetary policy announcement. Experts say the central bank may acknowledge the currency's weakness but avoid signalling any specific levels. The RBI's less interventionist stance, focused on managing volatility, has wider effects, raising import costs, adding to inflation, and increasing expenses for fuel, electronics, edible oils and Indians with overseas education or dollar-linked loans.