The rupee continued its downward trend for the second consecutive session, slipping 13 paise to reach a new record low of 85.87 (provisional) against the US dollar on Wednesday. The decline was driven by rising crude oil prices and a strengthening US dollar.
Forex analysts noted that subdued performance in domestic equity markets and persistent foreign fund outflows further weighed on the currency. Investor sentiment remained cautious amid the government’s lowered economic growth projections, adding to the rupee’s woes.
Another major reason for fall is the muted market activity in the domestic equity market that put pressure on the Indian currency. The weakening of the Indian rupee can be seen from late October, 2024 during the US election campaign and it bolstered with the victory of Trump on November 5, 2024. The Trump administration is usually expected to have stringent monterey policies that became the main reason for continuous decline.
At the interbank foreign exchange, the rupee opened at 85.82 and touched the lowest-ever level of 85.89 against the greenback during intra-day. The unit settled at 85.87 (provisional) against the dollar, 13 paise lower than its previous close.
On Tuesday, the rupee settled with a loss of 6 paise at 85.74 against the dollar. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.35 per cent higher at 108.76.
Sriram Iyer, Senior Research Analyst at Reliance Securities said, “The Indian Rupee could open weaker against the Dollar on Wednesday tracking an overnight rally in the Dollar and U.S. bond yields. The NDF markets are indicating that the Rupee could open around in the range of Rs 85.8000 to Rs 85.8200 against the U.S. dollar, compared with Rs 85.7225 in the previous session. The broad range for the $-rupee spot remained between 85.6800 to 85.8700 this Wednesday.”
He added, “Additionally, slower domestic economic growth and easing capital flows could also weigh. Meanwhile, Indian GDP slowed after data showed growth dipped to 6.4% in FY25, its lowest level in four years. Asian peers have started weaker and a rally in crude prices will weigh on the Rupee this Wednesday.”
Lower GDP forecast
Another reason that bolstered the downward trend is the announcement made by the Indian government recently that the country’s economic growth in 2024-25 is expected to downgrade to a four-year low of 6.4 per cent, mainly due to weaker performance in manufacturing and services. This is lower than the 6.6 per cent growth projected by the Reserve Bank of India in December 2024.
The Gross Domestic Product (GDP) growth at 6.4 per cent will be the lowest since the Covid year (2020-21) when the country witnessed a negative growth of 5.8 per cent. It was 8.2 per cent in the last fiscal ended March 2024.
In the domestic equity market, the 30-share BSE Sensex was trading 180.32 points, or 0.23 per cent, down at 78,018.79 points, while the Nifty was down 47.35 points, or 0.20 per cent, at 23,660.55 points.
Foreign institutional investors (FIIs) offloaded Rs 1,491.46 crore in the capital markets on a net basis on Tuesday, according to exchange data.
(With PTI Inputs)