Rupee Hits Record Low: Key Factors Explained
The Indian rupee has recently made headlines by plunging to a record low of 90.87 against the US dollar. This significant drop is primarily attributed to continuous outflows from foreign institutional investors (FIIs) and the ongoing uncertainty surrounding the India-US trade deal. As the currency opened at this all-time low, it reflected a loss of 9 paise from its previous closing rate of 90.78, causing concern among forex traders.
Despite the rupee's struggles, there were some factors that provided a glimmer of hope. A weaker US dollar and declining global crude oil prices helped to mitigate further losses. The dollar index, which measures the strength of the greenback against a basket of currencies, was down by 0.03 percent, indicating a more favorable environment for the rupee. However, the situation remains precarious as the rupee is still trading within a narrow range of 90.77 to 90.87.
The uncertainty regarding the India-US trade deal has further complicated the rupee's recovery. Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, highlighted that the deal seems distant, with the Commerce Secretary indicating that the first phase might only be signed before the year ends. This lack of clarity has clouded the outlook for the rupee, leading to consistent dollar buying.
On the economic front, India’s trade deficit has narrowed to a five-month low of USD 24.53 billion, driven by a 19.37 percent increase in exports. However, this positive development was not enough to boost the rupee, as FIIs continued to sell equities worth Rs 1,468.32 crore. Moreover, the recent wholesale price inflation data showed negative growth for the second consecutive month, further complicating the financial landscape.
In the domestic equity market, the situation was also grim. The benchmark Sensex fell by 363.92 points, reflecting the overall market sentiment. As the rupee faces multiple challenges, including foreign capital outflows and inflation concerns, its future remains uncertain. Investors and industry stakeholders will need to keep a close eye on both domestic and international developments to assess the potential for recovery.
