Rupee Reaches All-Time Low of ₹86 Against the US Dollar

On January 10, 2025, the Indian rupee fell to an all-time low of ₹86 against the US dollar, closing 14 paise lower than the previous day. This marks the first time the rupee has breached the ₹86 level, highlighting significant economic challenges.

Key Factors Behind the Depreciation

• Stronger US Dollar: The US dollar's strength, fueled by expectations of stricter trade policies from the incoming US administration, increased demand for the currency, putting pressure on the rupee.
• Foreign Institutional Investor (FII) Outflows: Ongoing outflows of foreign funds from Indian markets contributed to the rupee's decline. On January 9, FIIs withdrew ₹7,170.87 crore from the capital markets, intensifying the depreciation.
• Rising Crude Oil Prices: Higher global crude oil prices added to economic strain, as they can widen the trade deficit and increase import costs, further weakening the rupee.

Market Reactions and Outlook The rupee's decline has been accompanied by increased volatility in the foreign exchange market. Analysts predict that the Reserve Bank of India (RBI) may adopt a more flexible approach to managing the exchange rate, allowing for greater fluctuations while limiting significant movements. Despite RBI efforts to curb losses, the rupee continued to depreciate, closing at ₹85.9650 on January 10, marking its tenth consecutive week of decline.

Implications for the Indian Economy The rupee's depreciation brings several challenges:

• Inflationary Pressures: A weaker rupee raises import costs, contributing to inflation.
• Capital Flows: Continued FII outflows may impact market liquidity and investor sentiment.
• Monetary Policy: The RBI may need to adjust its policy to address the challenges posed by currency volatility.