Rupee hits lifetime low against Dollar, US economy strength, Chinese Yuan depreciation, and FPI outflows contribute
The Rupee closed at a lifetime low on Friday in the backdrop of the Dollar gaining strength, importers continuing to buy greenbacks, and FPI related outflows from equity markets, among others.
The Indian currency ended at 85.77 per Dollar (USD) against previous close of 85.7525.
The dollar index breached the key 109-mark, with the strength of the USD being supported by expectations of fewer rate cuts even as the US economy is seen doing well in 2025.
With the Chinese Yuan depreciating against USD, the Indian unit is coming under pressure.
Deutsche Bank India, in a report, observed that Rupee is likely to depreciate with or without rate cuts.
“We have a forecast of INR depreciating to 87 by end-March 2026, which can be seen earlier as well, if the tariff war escalates more than what we have factored in at this stage and the RBI relaxes its FX intervention strategy.
“RBI not cutting rates will not prevent rupee depreciation, but it will hurt the growth prospects for 2025 and beyond,in our view. Therefore, the interest rate policy should not be linked to the FX policy, in our view,” said the Bank’s economists.
The economists anticipate rupee to reflect more two-way movement in 2025, compared to the last few years.
“While the current account deficit of below 1.5% of GDP is not difficult to finance, but the inter-temporal volatility of capital flows is likely to exert pressure on the rupee (as is the case currently), as long as the broad Dollar index continues to strengthen,” they said.
Forex reserves
Meanwhile, India’s forex reserves declined to an eight-month low of $640.279 billion as on December 27, 2024, down $4.112 billion during the reporting week.