Mumbai: The Indian rupee (INR) has dropped to an all-time low against the US dollar (USD), reflecting ongoing challenges for emerging market currencies. On Friday, the rupee slid to 85.97 per dollar, surpassing its previous record low of 85.9325 set just a day earlier. The currency ended the week at 85.9650, marking a 0.2% weekly decline and extending its losing streak to ten consecutive weeks.
Persistent Pressure on the Rupee
The rupee’s depreciation is largely attributed to the strength of the US dollar, bolstered by expectations of slower Federal Reserve rate cuts and robust US labor market data. The dollar index remained above 109, close to a two-year high, as investors awaited the closely watched US non-farm payrolls data, which could shape monetary policy decisions.
According to ING Bank, stronger-than-expected jobs data could delay anticipated rate cuts, further strengthening the dollar. This scenario has also led to higher US bond yields, drawing foreign investments away from Indian markets.
Role of the Reserve Bank of India
The Reserve Bank of India (RBI) has been actively intervening to limit the rupee’s losses. On Friday, state-run banks were seen offering dollars, likely on behalf of the RBI, to stabilize the local currency. Despite these efforts, traders predict that the rupee may soon breach the 86 per dollar threshold.
Foreign Outflows Weigh on the Currency
Adding to the rupee’s woes, foreign investors have withdrawn over $3 billion from Indian equities and bonds in January alone. Weak capital inflows and heightened market volatility have further exacerbated the currency’s decline.
Implications for India
The rupee’s continued weakness increases the cost of imports, particularly crude oil, which could push inflation higher. It also poses challenges for businesses reliant on dollar-denominated loans and imports, potentially impacting India’s economic growth.
Outlook
With global markets closely watching US labor data and monetary policy, the rupee’s trajectory will likely depend on both external factors and domestic interventions. For now, the Indian rupee remains under significant pressure, reflecting broader trends in emerging market currencies amid a strong dollar environment.
This development highlights the importance of robust macroeconomic measures to navigate global financial uncertainties and safeguard India’s economic stability.
