The Indian rupee hit a record low on Monday, dropping to 84.6075 per U.S. dollar in early trading, surpassing its previous low of 84.5075. Concerns over slowing economic growth, combined with regional currency weaknesses, contributed to the decline. By 9:45 AM IST, the rupee was trading at 84.6025, down 0.1%, as the Reserve Bank of India (RBI) intervened to stabilize the currency through dollar sales via state-run banks.
Factors Behind the Decline
India’s GDP growth fell to its lowest in seven quarters during Q3, sparking concerns about a sluggish economy and increasing speculation that the RBI might cut interest rates. Such a move would likely exert further downward pressure on the rupee, already weakened by a stronger U.S. dollar and sustained foreign investor outflows from Indian equities.
Foreign investors sold $2.5 billion worth of Indian stocks in November, following $11 billion in outflows in October. Weak economic data could accelerate these outflows, intensifying the rupee’s challenges.
Broader Market Impact
- Indian equity indices: BSE Sensex and Nifty 50 both dipped 0.1%.
- Asian currencies: Fell between 0.2% and 0.6% as the U.S. dollar strengthened.
The dollar’s rally was partly driven by geopolitical tensions, including U.S. President-elect Donald Trump urging BRICS nations not to pursue alternatives to the dollar, threatening severe tariffs otherwise.
RBI’s Role and Forex Reserves
The RBI’s regular interventions to cushion the rupee have significantly impacted India’s foreign exchange reserves, which dropped to a five-month low of $656.6 billion as of November 22, marking a decline of $47 billion over the last seven weeks.
Analysts, including Michael Wan from MUFG Bank, suggest the upcoming RBI Monetary Policy Committee (MPC) meeting in December could see divided opinions among its members, reflecting the challenging economic and monetary landscape.
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