The Indian rupee extended its losing streak against the US dollar on Thursday, tumbling to an all-time low of 90.43 in early trading sessions. This marks a continuation of the currency's sharp decline, having breached the psychologically significant 90-level barrier just a day earlier.
Anatomy of a Rapid Decline
An analysis by an SBI research team highlights the alarming pace of this fall. The rupee has shed ₹5 against the dollar, moving from 85 to 90 in under a year, representing its fastest such decline. This depreciation has occurred despite active interventions by the Reserve Bank of India (RBI) aimed at stabilising the currency's value.
The pressure on the rupee is multifaceted. Sustained withdrawals by Foreign Portfolio Investors (FPIs), who have pulled out over $17 billion this year, have been a major driver. This capital outflow has been exacerbated by private equity firms cashing out investments via large startup IPOs. Furthermore, a widening trade deficit, fueled by high-cost imports of crude oil, metals, and electronics, alongside a broadly strengthening US dollar, continues to weigh heavily.
Government Stance and External Factors
Interestingly, the government has expressed a measured outlook on the situation. Chief Economic Adviser V Anantha Nageswaran stated that the government ‘is not losing sleep’ over the rupee's decline. He projected an improvement in the currency's value next year and remained optimistic about Foreign Direct Investment (FDI), suggesting, "We may cross $100bn this year."
External geopolitical events have also played a role. The currency has depreciated by 5.5% since April 2, a period that followed former US President Donald Trump's announcement of reciprocal tariffs. Recent months have seen additional strain from soaring gold and silver prices, leading to unprecedented imports and a worsened trade deficit in October.
Economic Implications: A Double-Edged Sword
The falling rupee presents a mixed bag for the Indian economy. On one hand, it increases the cost of imports across critical sectors like petroleum and consumer electronics. This, in turn, stokes inflationary pressures and makes international education, healthcare, and tourism more expensive for Indians.
On the other hand, a weaker currency offers some silver linings. It boosts the value of overseas remittances in rupee terms and enhances export competitiveness, which is particularly crucial as the economy navigates challenges like substantial US tariffs. Experts note that while a sharp fall risks importing inflation, a managed depreciation can help the central bank by enhancing corporate share values in dollar terms, managing the current account deficit, and preserving foreign exchange reserves.
Ultimately, the rupee's trajectory remains closely tied to global capital flows and commodity prices, setting it apart from domestic-focused indicators like the stock market. The coming months will be critical in determining whether the currency stabilises or continues its record-breaking slide.
