The Indian rupee witnessed a sharp decline on Monday, crashing by 79 paise to settle at an all-time closing low of 95.28 against the US dollar. This marks the weakest close ever for the domestic currency, as a strengthening US dollar and significant foreign capital outflows exerted heavy pressure on the local unit, according to forex traders.
Factors Behind the Rupee's Fall
The rupee's depreciation was driven by multiple factors. The US dollar index, which measures the greenback against a basket of six major currencies, surged to a fresh multi-year high, making emerging market currencies like the rupee less attractive. Additionally, sustained selling by foreign portfolio investors (FPIs) in Indian equity and debt markets added to the downward pressure. On Monday, FPIs pulled out over $500 million from Indian markets, intensifying the demand-supply imbalance for the rupee.
Market Reaction and Trading Range
During the trading session, the rupee opened weaker at 94.80 and touched an intraday low of 95.35 before recovering slightly to close at 95.28. The previous all-time closing low was 94.50, recorded earlier this month. The currency has now lost over 2% in the past month, reflecting persistent headwinds from global and domestic factors.
Global and Domestic Headwinds
On the global front, the US Federal Reserve's hawkish stance on interest rates has strengthened the dollar, as investors anticipate further rate hikes. Domestically, India's trade deficit widened to a record $25 billion in April, driven by high crude oil import bills, which also weighed on the rupee. Moreover, geopolitical tensions and risk aversion in global markets have prompted investors to seek safe-haven assets like the dollar.
Impact on the Economy
A weaker rupee makes imports more expensive, potentially fueling inflation, especially for oil and other commodities. However, it benefits exporters by making their goods cheaper in international markets. The Reserve Bank of India (RBI) is closely monitoring the situation and is expected to intervene through dollar sales to curb excessive volatility, though such measures have had limited impact so far.
The rupee's fall comes amid a broader sell-off in Asian currencies, with the Japanese yen and South Korean won also hitting multi-year lows. Analysts expect the rupee to remain under pressure in the near term, with the next support level seen at 95.50.
