Rupee at record low, breaches 84 vs dollar

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Last Updated14/10/2024

The Indian rupee fell below 84-per-dollar for the first time on Friday, pressured by concerns over the recent jump in oil prices and the exodus of foreign money from the domestic equity market.

On Friday, the Indian rupee dropped below the 84-per-dollar mark for the first time, signaling growing pressure on the currency amid rising oil prices and the exodus of foreign investors from the Indian equity market.
The rupee, which was last quoted at 84.0425 per dollar as of 12:20 p.m. IST, has been defended by the Reserve Bank of India (RBI) at this critical level for over two months. However, recent global developments have led to renewed concerns over its stability.

Rising Oil Prices: A major factor behind the rupee’s decline is the recent spike in Brent crude oil prices, which have surged by more than 10% in October. The Middle East conflict has further driven up oil prices, exacerbating India’s import bill, as the country is heavily dependent on oil imports.
Foreign Capital Outflows: Overseas investors have been pulling out of Indian equities over the last nine trading sessions, further weakening the rupee. As foreign funds exit the Indian stock market, the demand for dollars rises, leading to a decline in the rupee's value.
U.S. Monetary Policy Outlook: The chances of a large U.S. Federal Reserve rate cut in November have diminished following a strong jobs report. While markets previously anticipated a 50-basis-point cut, expectations have now shifted to a more modest 25-bps cut.
Worsening Balance of Payments: India’s balance of payments surplus has been shrinking due to a rising merchandise trade deficit. In August, the trade deficit hit a 10-month high of nearly $23 billion.
A surge in gold imports and weaker exports have contributed to this widening gap. The larger trade deficit has had a direct impact on India’s current account deficit, which rose to $9.7 billion in the April-June quarter, up from $8.9 billion last year.

For the past two months, the RBI has actively intervened to prevent the rupee from breaching the 84-level, instructing banks to avoid taking large bets against the currency. Despite these interventions, the rupee has remained under pressure due to global and domestic factors.
Going forward, the rupee could experience further weakness, but analysts believe that the RBI will manage the depreciation to ensure the currency remains stable. VRC Reddy, treasury head at Karur Vysya Bank, noted that the RBI may allow only "marginal depreciation" to prevent excessive volatility.