The rupee’s downward spiral against the US dollar has been a cause for concern in recent days, with the currency hitting a new record low of ₹85.87 on Wednesday. This decline can be attributed to a combination of factors, including higher crude oil prices, a stronger US dollar, lacklustre sentiment in domestic equity markets, and sustained outflow of foreign funds.
The dollar index, which measures the strength of the greenback against a basket of other currencies, was trading higher at 108.76, while the 10-year US bond yields remained elevated at 4.67%. Additionally, Brent crude prices climbed to $77.74 per barrel in futures trading, further adding pressure on the rupee.
The domestic equity market also saw a slight dip, with the BSE Sensex falling by 50.62 points and the Nifty declining by 18.95 points. Foreign institutional investors offloaded ₹1,491.46 crore in the capital markets on Tuesday, further weighing on sentiment.
Adding to the concerns, the latest government data revealed that India’s economic growth rate is estimated to drop to a four-year low of 6.4% in 2024-25. This is primarily due to underperformance in the manufacturing and services sectors. The GDP growth rate of 6.4% is the lowest since the negative growth recorded during the Covid year of 2020-21.
The Reserve Bank of India had projected a slightly higher growth rate of 6.6% for the same period, but the actual figures fell below expectations. This news has not only impacted the currency markets but also raised concerns about the overall economic outlook for the country.
In conclusion, the rupee’s decline against the US dollar reflects broader economic challenges facing India, including higher oil prices, a strong dollar, and concerns about economic growth. It will be important to monitor these developments closely to understand the implications for the economy and the currency in the coming days.
