The rupee recently dropped down to 85.44 against the US dollar, driven more by a strengthening US dollar. The rupee has been depreciating against the dollar since September 2024.
Rupee hits record low against dollar again. The rupee has been falling for the fourth consecutive day. It lost eight paise today. With this, the rupee’s current value has fallen to Rs 85.44.
In April 2024, the exchange rate was around 83, and a decade ago, it was approximately 61. This reflects a steady decline in the rupee’s value relative to the dollar.
The large outflow of foreign investment is causing the rupee to depreciate. The rupee had recorded a huge decline the previous day. The rupee lost 12 paise yesterday. The value fell to Rs 85.27. At the same time, the dollar showed strength against six global currencies. The dollar index is trading with a gain of 0.4 percent. One of the reasons for the dollar’s strength is the increase in US Treasury yields.
On the other hand, Exchange rates are driven by demand and supply dynamics. If Indians demand more US dollars than Americans demand Indian rupees, the dollar’s value rises relative to the rupee, making it costlier. Persistent demand imbalance strengthens this trend, causing the rupee to weaken against the dollar.
If India imports more goods from the US than it exports, the demand for US dollars exceeds that for Indian rupees. This strengthens the dollar and weakens the rupee, requiring more rupees to buy one dollar.
Since a large proportion of India’s imports are dollar-denominated, these imports will get costlier. Costlier imports, in turn, will widen the trade deficit as well as the current account deficit, which, in turn, will put pressure on the exchange rate.
Oil futures prices also rose. Brent crude rose 0.7 percent to $73.31 a barrel. Stock markets are trading with gains. The Bombay Stock Exchange Sensex gained 207 points. The Bombay Stock Exchange Index is trading at 78,699.07 points. The Nifty also rose 88 points to 23,813.40 points. Foreign institutional investors sold shares worth Rs 2,376 crore in the past few days.
If the US bans or imposes high tariffs on Indian goods, demand for Indian rupees drops as Americans no longer need rupees to buy Indian products. That weaken the rupee.
Already U.S. President-elect Donald Trump on November 30, 2024 threatened 100% tariffs against a bloc of nine nations if they act to undermine the U.S. dollar, and encourage Brics.
His threat was directed at countries in the BRICS bloc, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates.
Indeed this sliding value of Indian Rupee against American Dollar is a challenge to its pre-eminence; but we will survive it!