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The Indian rupee has recently fallen to record lows against the U.S. dollar, reaching 86.5950 per dollar on January 14, 2025.
Several factors contribute to this decline:
Strong U.S. Dollar
The U.S. dollar is getting stronger. The dollar index even went up to 109.6, almost hitting its highest in two years. At this time, when the U.S. economy is very good, the rupee starts to fall. That’s because investors really prefer to put their cash in dollar things. The dollar is basically the top choice among them. And because of that, the rupee just can’t keep up and begins to lose its value.
Non-Deliverable Forward (NDF) Market Dynamics
In the NDF market, people figured the rupee would slide weaker, so they acted on that hypothesis. Because of that, as their moves started to play out through the months and years, they needed more dollars. This made everyone want dollars a lot more, which made things tougher for the rupee since it started to drop in value.
Foreign Investment Outflows
Foreign investors have been selling Indian stocks and bonds, withdrawing over $4 billion in January alone.
Because the Reserve Bank of India (RBI) might cut interest rates, and there are worries about India’s economy not doing very well, foreign investors aren’t planning on placing their money in Indian assets. This causes people to not like rupees as much, which causes its value to drop.
Limited RBI Intervention
The rupee’s been dropping because the RBI isn’t trying very hard to save it, especially since their supply of foreign cash isn’t as full. They did try to sell some dollars to support the rupee–but didn’t move forward.
Global Economic Factors
Why isn’t the rupee doing as well against the dollar now, because there’s been a lot of change. Global economic issues, like the cost of crude oil going up, are making India spend more on imports. This state of affairs is making the gap between what India sells and buys from other states larger and is causing the rupee to drop in value.
At the same time, the U.S. dollar is getting stronger because of something specific going on with the NDF market. States aren’t investing as much money here, and the Reserve Bank of India isn’t joining in to fix things. In addition, the world’s economy is being ignored, not thinking much about what’s happening in other places.
Many factors combined have made the rupee drop in value. That’s basically why the rupee has been not doing well recently.
