Unprecedented Low for Indian Rupee in Currency Market
The Indian rupee hit its weakest level against the U.S. Dollar on Friday, settling at 85.5325 after reaching an intraday low of 85.8075. For the first time since June 2024, its value fell by 0.3% in one session. Market volatility ramped up as non-deliverable forwards and December currency futures came due, causing dollar demand and anxiety among importers.
Central Bank Intervention Stabilizes the Rupee
Traders noted a sizeable number of dollar bids during the opening minutes as the Reserve Bank of India (RBI) refrained from intervening immediately. The lack of early action allowed market forces to diminish the value of the rupee later even more and caused panic among importers.
During the day, however, the RBI resumed its activity in the currency market to arrest the rupee’s decline. According to traders, the central bank’s intervention in the final trading hours provided temporary relief, ensuring the rupee closed above its intraday low. Abhishek Goenka, CEO of FX advisory firm IFA Global Global, cited that the RBI seemed focused on letting the rupee adjust and correct its overvaluation compared to peer currencies.
Broader Economic Challenges and Global Dollar Strength Add to Pressure
The rupee’s decline can be attributed to the widening domestic economic growth rate and trade deficit. All these factors have added pressure on a strong U.S. dollar, an outcome of the Federal Reserve’s persistently hawkish monetary policy. Anticipations about the policies of the newly emerging U.S. administration with President-elect Donald Trump have provided additional support to the greenback.
The rupee has been declining for the past eight consecutive weeks. The measure of competitiveness—the real effective exchange rate (REER) in 40 currencies—reached a multi-year high at 108.14 in November, which means that the currency is still overvalued by approximately 8%. This overvaluation has now brought the rupee under great pressure from outside events.
Market Outlook and Regional Trends
The dollar index was 108.1 on Friday, and most Asian currencies were down 0.1% to 0.4% as the trend indicator pointed to a stronger dollar in the region. Market operators cited the early month effect—where December futures contracts matured—and the unwinding of non-deliverable forwards as factors that have led to the rupee’s recent fluctuations.
In the future, analysts expect the RBI to tread this line more cautiously, letting the rupee reach a more sustainable level without disturbing extreme market conditions. The importers and exporters will likely be alert regarding the actions of central banks and global markets.
