Rupee Falls Below 85: Historic Decline Against Dollar But Why ?
For the first time in history, the Indian rupee breached the 85-mark against the US dollar on December 19, 2024, hitting an all-time low of ₹85.07 during morning trade. This milestone highlights the persistent downward pressure on the Indian currency, driven by global economic trends and domestic challenges.
Why is the Rupee Declining?
- Hawkish Stance from US Federal Reserve:
The US Federal Reserve’s recent hawkish approach, despite a rate cut of 25 basis points, has strengthened the dollar. With projections of fewer rate cuts in 2025 and 2026, the dollar surged, reaching a two-year peak at 108.04 on the dollar index. - Domestic Challenges:
Rising trade deficits have added to the rupee’s woes. November saw record-high gold imports, further straining the currency. However, some experts suggest the gold import figures might include calculation errors. - Foreign Fund Outflows and Weak Equities:
Foreign Institutional Investors (FIIs) sold ₹1,316.81 crore in Indian equities on Wednesday, adding to the downward momentum. The Sensex and Nifty mirrored the trend, both trading over 1% lower in morning sessions.
Market Reactions:
- The rupee opened weak at the interbank foreign exchange, breaching the critical ₹85 level.
- Brent crude prices dipped 0.42% to $73.08 per barrel, reflecting global economic caution.
- A broad sell-off in equities, commodities, and bonds reinforced the dollar’s strength, intensifying the rupee’s decline.
Expert Insights:
Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, noted that the Reserve Bank of India (RBI) is likely to intervene to protect key levels but may not alter the overall direction of the rupee’s movement.
Conclusion:
The rupee’s fall below the 85-mark reflects a confluence of global monetary policies, domestic trade imbalances, and investor sentiment. As markets remain volatile, the focus will remain on the RBI’s actions and global economic developments.
