Rupee Hits All-Time Low at 85.87/$; Analysts Predict Continued Weakness
Rupee Hits All-Time Low at 85.87/$; Analysts Predict Continued Weakness
The rupee continued its downward trend for the second consecutive session, slipping 13 paise to reach a new record low of 85.87 (provisional) against the US dollar on Wednesday. This decline was primarily driven by rising crude oil prices and a strengthening US dollar.
Forex analysts noted that the subdued performance in domestic equity markets and persistent foreign fund outflows further weighed on the currency. Investor sentiment remained cautious amid the government’s lowered economic growth projections, which added to the rupee’s woes.
Another major reason for the fall is the muted market activity in the domestic equity market, which has put additional pressure on the Indian currency. The weakening of the Indian rupee can be traced back to late October 2024 during the US election campaign, and it bolstered with Trump’s victory on November 5, 2024. The Trump administration is typically expected to implement stringent monetary policies, which have become a significant factor in the continuous decline of the rupee.
In the interbank foreign exchange market, the rupee opened at 85.82 and hit an all-time low of 85.89 against the dollar during the day. It closed at 85.87 (provisional), which is 13 paise lower than its previous close. On Tuesday, the rupee ended with a loss of 6 paise at 85.74 against the dollar. Meanwhile, the dollar index, which measures the dollar’s strength against a group of six currencies, was up by 0.35 percent at 108.76.
A senior research analyst mentioned that the Indian Rupee may open weaker against the Dollar on Wednesday due to an overnight increase in the Dollar and U.S. bond yields. The NDF markets suggest that the Rupee could open in the range of Rs 85.8000 to Rs 85.8200 against the U.S. dollar, compared to Rs 85.7225 in the previous session. The expected range for the dollar-rupee spot remains between 85.6800 and 85.8700 on Wednesday.
He also noted that slower domestic economic growth and reduced capital flows could negatively impact the Rupee. Additionally, the Indian GDP has slowed down, with growth dropping to 6.4% in FY25, marking its lowest level in four years. Asian currencies have begun the day weaker, and a rise in crude oil prices is likely to further pressure the Rupee on Wednesday.
Decrease in GDP Forecast.
The recent announcement from the Indian government about a lower GDP forecast has contributed to the ongoing downward trend. The government expects the country’s economic growth for 2024-25 to drop to a four-year low of 6.4 percent, primarily due to a decline in the manufacturing and services sectors. This figure is lower than the 6.6 percent growth that the Reserve Bank of India had projected in December 2024.
If the GDP growth reaches 6.4 percent, it will be the lowest since the Covid year (2020-21), when the economy contracted by 5.8 percent. In comparison, the growth rate was 8.2 percent in the fiscal year that ended in March 2024.
In the domestic equity market, the 30-share BSE Sensex fell by 180.32 points, or 0.23 percent, to trade at 78,018.79 points, while the Nifty decreased by 47.35 points, or 0.20 percent, to 23,660.55 points.
Foreign institutional investors (FIIs) sold off a net amount of Rs 1,491.46 crore in the capital markets on Tuesday, based on data from the exchanges.
