Rupee Falls Below 90 Against Dollar for the First Time - 6.5% Drop in a Year
On December 3rd, 2023, the Indian Rupee fell to a record low of 90.05 against the US Dollar, crossing the psychological barrier of 90 for the first time. This marks a 6.5% depreciation in the rupee over the past year. The drop is attributed to a variety of factors, including sluggish trade flows, portfolio outflows, and concerns over stalled trade talks with the US.
Reasons Behind the Fall of the Rupee
One of the primary reasons for the rupee's depreciation is the constant demand for the US Dollar from importers and speculative short-covering. Additionally, the government's and the RBI's continued attempts to support the rupee have been less effective, with some market analysts predicting that the rupee could potentially reach the 91 level if the support at 90 breaks down.
As of now, foreign institutional investors (FPI) have been selling off equities, which has further weakened the rupee. The USD index, which measures the strength of the dollar against six major currencies, has also seen a slight decrease, which typically should have supported the rupee, but it failed to halt the depreciation.
Impact of Global Factors
In addition to local factors, global influences such as fluctuating oil prices and the upcoming decisions regarding interest rates by the Federal Reserve and the RBI also play a role. Brent crude, the global oil benchmark, has seen a minor decline, which should normally ease some pressure on the rupee, but the broader economic concerns continue to weigh on the currency.
The MPC (Monetary Policy Committee) meeting scheduled for December 5, 2023, will decide on the interest rate, and this could have further implications for the rupee, especially if the RBI opts for a rate cut, as this might lead to further selling of the Indian Rupee.
Market Sentiment
Market analysts suggest that if the RBI support at 90 breaks down, the rupee could potentially weaken further to the 91 level. Investors will closely monitor the upcoming RBI and Federal Reserve meetings to understand the future direction of the rupee.