The Indian rupee plummeted to an all-time low of 96.52 against the US dollar in intraday trade on Tuesday, before closing at the same level. The previous record low was 96.40, touched on Monday. The sharp decline was driven by persistent demand for the US currency from importers and foreign banks, coupled with a surge in global crude oil prices.
Factors Behind the Fall
Forex traders attributed the rupee's weakness to a combination of domestic and global factors. On the domestic front, sustained outflows of foreign funds from Indian equity markets added pressure on the rupee. Globally, the strengthening of the US dollar against major currencies, fueled by expectations of further interest rate hikes by the US Federal Reserve, weighed heavily on emerging market currencies like the rupee.
Impact of Crude Oil Prices
Rising crude oil prices further exacerbated the rupee's decline. India, being a major importer of crude oil, faces higher import bills when oil prices rise, leading to increased demand for dollars. Brent crude futures climbed above $95 per barrel, marking a significant increase from recent levels.
Market Sentiment
Analysts noted that the Reserve Bank of India (RBI) is likely intervening in the forex market to curb excessive volatility, but the overall trend remains bearish for the rupee. The central bank has been selling dollars through state-run banks to prevent a sharp depreciation, but the impact has been limited given the strong global headwinds.
What Lies Ahead
Market participants expect the rupee to remain under pressure in the near term, with the possibility of testing the 97-mark if the dollar continues to strengthen and crude oil prices stay elevated. However, any positive developments on the geopolitical front or a reversal in foreign fund flows could provide some respite to the currency.
