MUMBAI – The Indian rupee continued its downward trend, reaching a lifetime low of 85.2525 against the U.S. dollar on Thursday, marking the seventh consecutive session of decline. The currency has depreciated by 1.74% since October’s beginning, setting the stage for its most severe quarterly downturn since the July-September period of 2022.
Economic indicators paint a challenging picture for India’s financial health. A burgeoning trade deficit, up by 18.4% year-on-year from April to November according to IDFC First Bank, alongside a significant reduction in capital inflows, has put substantial pressure on the rupee. Equity and debt markets have seen outflows amounting to $10.3 billion this quarter, a stark contrast to the $20 billion in inflows recorded last quarter, as per NSDL data.
The balance of payments (BoP) has shifted from a surplus of over $60 billion last fiscal year to an estimated deficit of $20 billion to $30 billion for the current fiscal year. This shift, combined with a strengthening U.S. dollar following Donald Trump’s election, has exacerbated the rupee’s decline. IDFC First Bank forecasts further weakening, predicting the rupee could reach 86 against the dollar by September 2025.
Dollar in Demand
The dollar’s surge post-Trump’s victory has significantly impacted global currencies, including the rupee. The dollar index, reflecting the greenback’s strength against a basket of major currencies, is near its year-to-date peak, driven by expectations of growth and inflation under the new administration’s policies.
These expectations have influenced the U.S. Federal Reserve’s outlook as well. Earlier this month, officials signaled a cautious approach, projecting fewer rate cuts for the coming year in response to anticipated higher inflation, further bolstering the dollar’s value on the international stage.
This confluence of domestic economic challenges and international monetary dynamics continues to place significant pressure on the Indian rupee, with implications for India’s economic policy and foreign exchange strategies moving forward.
