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Indian rupee weakens to all-time low: Learn all about it

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Published Date: 30 Nov 2024Updated Date: 30 Dec 20246 mins readBy MOFSL

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Introduction

The Indian rupee hit a historical low of 84.13 against the USD on 11th November 2024, Monday. This was the fourth station where the value of the Indian rupee dropped by 2 paise against the USD. The drop is the result of constant outflows of foreign funds and the silent trend in domestic equities. It is likely to remain under this pressure condition until the dollar index softens or the foreign fund outflows simmer down. Read on to understand more about the rupee drop and the conditions influencing it.

How did the decline in the rupee take effect?

According to the new reports of PTI news, the Indian rupee started at 84.13 against the US Dollar in the interbank foreign exchange market. This was a hit below 2 paise from its previous close. On Monday, 11th November 2024, it started at a new low at the beginning of the trading day at 84.13 and closed at the end with a historical all-time low of 84.11. The ongoing foreign outlaws and the ongoing elections seem to have contributed to such a shift.

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RBI's Intervention to control the situation

The Reserve Bank of India (RBI) took certain routine measures on Monday to prevent further drops in the rupee. Despite the challenges, RBI has been somewhat successful in supporting the currency by intervening in the global market even with US bond yields and foreign outflows. However, such intervention can only extend over a period of time. Ultimately, the currency is still vulnerable to global factors. As Donald Trump wins the US presidential elections, RBI is reported to be prepared for the growing global market volatility and pressure, as per Reuters.

Asian currency pressure and the Indian rupee

Throughout history, the rise of the dollar has placed pressure on Asian currencies. Naturally, the Indian rupee is impacted. The past week witnessed a similar trend across most regional currencies in Asia. A temporary stagnation was evident on Thursday after hitting a sharp decline of 1.8% in the earlier session. The dollar index remains high. This index measures the dollar's strength against other major currencies. The index is holding steady at around 104.9. Such a strong dollar index is known to impact the stability of the Indian rupee. As a result, imports become more expensive and servicing dollar-dominant debt can get challenging.

Key factors behind the decline of the rupee

Many factors played a role in the drop in the rupee last month. Here's a closer look at some of them:

· The US Presidential elections

The increased volatility in the Indian currency is mainly due to the uncertainty surrounding the cutthroat US presidential election. Democrat Kamala Harris and Republican Donald Trump were closely matched in this election. As the candidates battled it out, the rupee remained volatile till the results were declared.

· Consistent foreign fund outflows

As foreign investors shift their focus to China, they have been redeeming their Indian stocks. As a result, the Indian market is heavily impacted by an already plummeting condition due to low corporate earnings and high stock prices. The VP of Research at LKP Securities, Jatin Trivedi, commented that the Indian rupee is under pressure because foreign investors are pulling out money from the country. As a result, the rupee is trading on the lower side, below 84, and if the trend continues, it is expected to drop further to levels around 84.35, 84.50, and more.

· The geopolitical tension

As per a Bank of Baroda report quoted by ANI, the ongoing tension in the Middle East with its domestic inflation and the US elections have had an influence on the movement of the rupee. Also, the market analysts believe that geopolitical tensions have caused delays in the OPEC oil production. Hence, there is a rise in oil prices.

· Downgrade of earnings

The downgrade of earnings in India has also contributed to the decline in the rupee. The Chief Investment Strategist of Geojit Financial Services, Dr. V.K Vijayakumar, commented that India's poor performance was noteworthy. We see a rise in the S&P 500 by 20.45% year-to-date, and Nifty 50 has increased only by 10.36% year-to-date. As around two-thirds of the Nifty 5p companies fail to meet their Q2 earnings projections, the earnings forecast is downgraded by 10% for FY2025.

Conclusion

As noticeable, the Indian rupee's recent fall is the accumulated effect of multiple factors. The global economic shifts, geopolitical tensions, and domestic challenges have led the rupee to this position. Events like the US elections, foreign fund outflows, and a strong dollar index have added considerable pressure. While RBI has taken measures to stabilise the situation, the currency remains vulnerable to global uncertainties. Moving forward, the rupee's performance will depend on how quickly the global and domestic conditions stabilise. The onus is also on the policymakers to strengthen the economy with their policy. Till then, you can track the market and adjust your investment strategies accordingly.