The rupee fell to an all-time low of 85.2525 against the US dollar on December 26, 2024. (Shutterstock)
The Indian rupee hit a record low for a seventh straight session on Thursday, extending losses in the current quarter on the back of a widening trade deficit and weak capital inflows, reaching 85.2525 against the US dollar, tracking most of its Asian peers.
All emerging market currencies are under pressure, but the degree of pressure varies depending on the economic and financial situation of each country, Haitham Elgendy, senior financial markets analyst at T-Matrix, told CNN Business.
The changing nature of India’s balance of payments, as well as the rise in the value of the US dollar and US yields since Donald Trump’s victory in the US election, are undermining the South Asian currency, Elgendy added.
The currency has fallen 1.74 percent since the beginning of October, and is on track for its worst quarterly performance since July-September 2022.
“The Indian rupee has fallen because India has recently been experiencing an economic slowdown and has a high trade deficit, especially since it is a net energy importer,” Al-Jundi said. India’s trade deficit rose 18.4 percent year-on-year in April-November, according to ADFC First Bank calculations, while outflows of equity and debt reached $10.3 billion this quarter, in the opposite direction from inflows of $20 billion in the previous quarter, according to NSDL data.
According to economists, these factors have led to a deficit in the balance of payments in the current quarter, with the balance of payments deficit expected to be between $20 billion and $30 billion in the current fiscal year, compared with a surplus of more than $60 billion in the previous fiscal year.
The IMF said balance of payments outflows, coupled with a stronger dollar, would keep the rupee under pressure, and it expected the currency to weaken to 86 by September 2025.
Demand for Dollar
The dollar’s appreciation in the wake of Trump’s election victory is adding to the headwinds facing the rupee, with the dollar index hovering near its highest levels since the start of the year amid expectations that the US president-elect’s policies will boost growth and inflation.
The prospect of higher inflation prompted Fed officials earlier this month to predict fewer rate cuts next year.
“The strengthening dollar has made it more expensive for countries to borrow, especially debt-ridden ones, so just as the Indian rupee is under pressure, the Brazilian real is also the worst performing currency in the emerging market basket,” Elgindy said.
He added that despite “raising interest rates three times since September by 175 basis points and the central bank there pledging to raise interest rates by 100 points in each of the next two meetings, the Brazilian real is still falling to record levels and the bank there is forced to find alternative options to pump dollars into the market.”
