One of the key factors is the absence of clarity around the India–US trade deal, which has supported the US Dollar and created caution in currencies of emerging market, including the rupee.
Indian rupee extended an eight-month decline to breach a key psychological level of 90 and touched the all-time intraday low of Rs 90.30 against the dollar. However, it recovered some ground to close at a new all-time low of 90.21, down 25 paise from its previous close. Rupee has dipped over 5 per cent against the dollar year-to-date and is among Asia’s worst performers. The rupee has declined to 90 from 85, and it took a little under a year or less than half the time it took to fall from 80 to 85.
What’s behind the fall?
There are a couple of factors that have led to this sharp fall in the rupee against the US dollar.
- One of the key factors is the absence of clarity around the India–US trade deal, which has supported the US Dollar and created caution in currencies of emerging market, including the rupee.
- Another important factor behind this decline is continued foreign investor outflows despite steady inflation and GDP (gross domestic product) growth.
- Escalating geopolitical tension and the sudden crash in cryptocurrencies have driven safe-haven flows into the dollar, weighing on the rupee.
“The fall in rupee is largely driven by the absence of clarity on the India–US trade deal, coupled with record-high bullion and metal prices that have worsened the import bill. Higher U.S. tariffs and limited RBI intervention have added to the pressure. With the RBI policy due Friday, markets will look for cues on whether the fall will stabilise; technically, the rupee remains oversold and needs to reclaim 89.80 to recover meaningfully,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.
What future holds for the rupee?
According to experts, the 90-per-dollar is the new normal for the Indian currency. “Destiny of rupee is to depreciate … a 2-3 per cent depreciation in the rupee is natural given the imbalances,” Nilesh Shah, who heads the Kotak Mahindra Mutual Fund and is also a part-time member of the Economic Advisory Council to the Prime Minister (EAC-PM), was quoted as saying by news agency PTI.
Shah said that 90 per US dollar will be maintained even if India clinches the trade pact with the US.
Why does it matter to you?
Depreciation in the rupee impacts not just Dalal Street but the average Indian household also. India is a major importer of edible oils and most of the electronics. Not just this, it imports nearly 85 per cent of its crude oil. When the rupee weakens, it takes more rupees to buy the same barrel of oil priced in US dollars. In return, the prices of petrol, diesel and cooking gas (LPG) will go up. With the rise in transportation cost, prices of every single good will shoot up.
Not just this, students studying abroad will have to pay more annually if the rupee falls.
What are the key levels to watch?
According to Anindya Banerjee, Head Commodity and Currency, with 90 now broken decisively, it becomes the key pivot.
“Sustained trading above this area may keep the door open for 90.50–91, while initial support lies near 89.80,” Banerjee said.
“Not losing sleep over falling rupee’
However, Chief Economic Adviser V Anantha Nageswaran has stated that the government is not losing sleep over declining rupee against the greenback. Nageswaran said that falling reupped is not affecting inflation or exports and expressed hope that it will improve next year.
