Rupee Hits Record Low of 86.59 Against US Dollar Amid Crude Price Surge and Strengthening Greenback
The Indian rupee experienced its steepest single-day fall in nearly two years on Monday, plunging 55 paise to hit an all-time low of 86.59 against the US dollar during mid-session trading. The decline was driven by a robust US dollar and rising crude oil prices, exacerbating concerns for India’s economic stability.
At the interbank foreign exchange market, the rupee opened at 86.12 but soon fell to a historic low of 86.59 against the dollar, marking a 55-paise or 0.65% drop from its previous close. The Indian currency managed to recover slightly, trading 46 paise down at 86.50 later in the session. This marked the steepest one-day fall since February 6, 2023, when the rupee lost 68 paise in a single session.
Over the past two weeks, the rupee has depreciated significantly, losing more than one rupee against the dollar. It closed at 85.52 on December 30 and has since declined steadily. On Friday, it slipped 18 paise to settle at 86.04 after a minor 5-paise gain the previous day. Earlier in the week, it dropped another 17 paise, reflecting ongoing volatility in the currency market.
The decline has been attributed to the strengthening of the US dollar, which has been buoyed by better-than-expected job growth in the American labor market. This has driven up benchmark Treasury yields and tempered expectations of a swift rate cut by the Federal Reserve. Forex analysts also pointed to dwindling foreign exchange reserves and significant outflows of foreign capital from Indian equities as contributing factors.
Foreign Institutional Investors (FIIs) sold off equities worth ₹2,254.68 crore on Friday alone, with total withdrawals for January exceeding ₹22,194 crore, according to exchange data. The Reserve Bank of India (RBI) has been monitoring the situation, but analysts suggest it may allow the rupee to weaken further amid rising demand for the dollar and shrinking reserves.
“The RBI may tolerate this depreciation as demand continues to rise while supply remains constrained,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.
The global economic environment has also added pressure. Brent crude oil prices surged 1.42% to USD 80.92 per barrel, spurred by new sanctions imposed by the US on Russia. The dollar index, which measures the greenback against six major currencies, rose 0.11% to a two-year high of 109.60. Additionally, US 10-year Treasury bond yields climbed to 4.78%, their highest level since October 2023.
The domestic equity markets reflected the turbulence, with the 30-share BSE Sensex plummeting by 917.30 points, or 1.19%, to 76,461.61. The Nifty also fell by 307.40 points, or 1.31%, to close at 23,124.10.
The RBI reported on Friday that India’s foreign exchange reserves had decreased by USD 5.693 billion, reaching USD 634.585 billion as of January 3.
Amid the challenges, some positive economic data provided a silver lining. The government’s latest figures showed industrial production (IIP) growth accelerating to a six-month high of 5.2% year-on-year in November 2024. The growth was attributed to festive demand and improved manufacturing sector performance, providing hope for recovery despite currency and market pressures.
