RUPEE’S RECORD LOW: ECONOMY

RUPEE’S RECORD LOW: ECONOMY

NEWS : Rupee Hits Record Low of 84 Against USD: Factors Leading to the Fall and the Outlook

 

WHAT’S IN THE NEWS ?

Analysts said the rupee has not fallen below 84 as the RBI has been protecting the level for the last two months. 

Rupee’s Record Low:

  • Indian Rupee closed above ₹84 per US dollar for the first time, settling at ₹84.07.

Factors Causing the Slide:

  1. Foreign Institutional Investors (FIIs) Outflows: Significant outflows of foreign funds are putting pressure on the Rupee.
  2. Rising Crude Oil Prices: Increasing oil prices have raised import bills, weakening the Rupee.
  3. Higher Demand for US Dollar: Foreign banks' demand for US dollars has contributed to the Rupee’s decline.
  4. Weak Domestic Markets: Domestic equity market weakness is adding to Rupee depreciation.
  5. FPI Shift to China: Foreign Portfolio Investors are shifting to Chinese stocks, reducing investments in India.

RBI’s Intervention:

  • The RBI has been defending the Rupee for two months. The Rupee has not breached ₹84 due to these efforts.
  • A softer US Dollar Index also helped prevent a sharper fall.

US Economic Indicators:

  • Higher Unemployment Claims: US unemployment claims exceeded expectations.
  • Rising Inflation: US inflation and core CPI both rose more than forecasted.

Domestic Equity Market Impact:

  • Recovery in domestic markets has provided limited support for the Rupee.
  • Aggressive FII selling has capped the Rupee’s gains.

Outlook on the Rupee:

  • Volatility Expected: Due to uncertain oil prices, US dollar fluctuations, and geopolitical tensions.
  • Pressure from US Dollar Strength: The overall strong US Dollar may keep the Rupee under pressure.
  • Support from Oil Price Decline: A fall in oil prices could help the Rupee.

US Dollar Index (DXY):

  • Measures the value of the US dollar against six major currencies, with the Euro having the largest weight (57.6%).
  • A rise in DXY indicates a stronger US dollar; a fall suggests weakness.
  • Strong DXY leads to lower commodity prices but hurts US exports, while a weak DXY boosts exports but raises import costs.

Source : https://indianexpress.com/article/business/rupee-hits-an-all-time-low-of-84-against-the-us-dollar-factors-leading-to-the-fall-9617735/#:~:text=On%20September%2012%2C%20the%20local,83.99%20against%20the%20US%20dollar.