The Indian rupee fell by 4 paise to an all-time low of 84.76 against the US dollar in early trade on Tuesday, driven by the strength of the US currency in the global market and persistent foreign portfolio outflows that have dampened investor sentiment. Forex traders noted that the rupee’s depreciation was largely influenced by a combination of factors, including remarks made by US President-elect Donald Trump on the BRICs currency, political instability in the Eurozone, weaker domestic economic indicators, and continued foreign fund outflows.
On Saturday, Trump threatened to impose a 100% tariff on BRIC countries if they attempted to undermine the US dollar, further heightening tensions in global markets. The market is also closely watching the upcoming Reserve Bank of India (RBI) monetary policy review, scheduled for December 6, which is expected to address the delicate balance between inflation control and economic growth.
At the interbank foreign exchange, the rupee opened at 84.75 and traded within a narrow range, hitting a fresh low of 84.76 against the dollar, marking a 4 paise drop from its previous close. This follows the rupee’s depreciation on Monday, when it fell by 12 paise to close at 84.72, its previous all-time low.
The strength of the US dollar has been a significant factor, with the dollar index, which measures the greenback’s performance against a basket of six currencies, rising by 0.07% to 106.51. In addition, Brent crude, the global oil benchmark, rose by 0.18% to USD 71.96 per barrel in futures trade, adding further pressure on the rupee.
On Monday, Minister of State for Finance Pankaj Chaudhary reassured Parliament that despite the rupee’s depreciation, it remains one of the best-performing currencies in Asia. He attributed the rupee’s weakness largely to the broad-based strength of the US dollar, which has risen by approximately 4.8% since the start of 2024, with the dollar index reaching a peak of 108.07 on November 22, its highest in over a year. Chaudhary also noted that geopolitical tensions in the Middle East and uncertainty surrounding the US presidential election had contributed to the current economic headwinds.
The minister explained that while currency depreciation could make exports more competitive, boosting economic activity, it also raises the cost of imports, which could lead to inflationary pressures on domestic prices. He assured that the RBI continuously monitors global developments that could affect the USD-INR exchange rate and would take necessary actions to maintain stability.
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On the domestic front, Indian equity markets showed positive movement, with the 30-share benchmark index Sensex rising by 192.33 points, or 0.24%, to reach 80,440.41 points. Similarly, the Nifty rose by 53.10 points, or 0.22%, to stand at 24,329.15 points, indicating some stability in the broader market despite the currency volatility.
However, the persistent outflow of foreign funds continues to weigh on the rupee. Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday, offloading shares worth Rs 238.28 crore, according to exchange data. This continued selling pressure from FIIs has further added strain to the currency, contributing to the rupee’s downward movement.
As global economic uncertainties persist, traders and investors will be closely monitoring both domestic and international developments, with particular attention on how the upcoming RBI policy review and geopolitical events unfold. The fate of the rupee will largely depend on the interplay between these factors, and whether India’s economic fundamentals can withstand the ongoing external pressures.
