Rupee Slumps To Record Low

MUMBAI, (Reuters)- The Indian rupee has fallen to a record low.  January 13 marked its biggest single-day decline in nearly two years. The rupee slid to 86.5825 before closing at 86.5750, down 0.7% on the day. This drop was driven by a surging U.S. dollar, potential outflows from local equities, and limited intervention from the Reserve Bank of India (RBI). The last time the rupee fell this much was in February 2023.

The rupee has declined over 2% since December, weighed down by concerns over India’s slowing growth and the possibility of the RBI cutting rates in February. “The rupee’s slide can continue for some time as negative factors have stacked up quite a bit unless the central bank announces some measures,” said Anshul Chandak, head of treasury at RBL Bank. He added that the 87 mark is “just around the corner” and expects the RBI to be cautious with its diminished reserves.

India’s foreign exchange reserves dropped to $634.6 billion in the week ending January 3, 2025, a 10-month low and down $70 billion from the peak reached in late September. The country experienced the largest percentage drawdown in FX reserves in Asia in December, according to Nomura.

While the RBI has been intervening by selling dollars in both the spot and forward markets, traders noted that the central bank was less aggressive in its actions compared to previous instances of rupee weakness.

The rupee’s weakness mirrors trends in other Asian currencies, which have been struggling amid a surge in the U.S. dollar. The U.S. economy added more jobs than expected in December, raising expectations that borrowing costs in the U.S. will stay higher for longer, which in turn boosted the dollar and pushed U.S. Treasury yields to multi-month highs.

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