For the first time, the Indian rupee has crossed the 86 mark against the US dollar, attributed to a number of domestic and global factors. On January 13, 2025, the rupee recorded its steepest single-day fall against the dollar to close at 86.58 per dollar and became the worst-performing Asian currency of the day. Strengthening of the US dollar; increasing crude oil prices and selloffs in the domestic equities market have been cited as reasons for this sharp decline.
In February 2023, which was when the currency had its previous steepest single-day fall, the rupee had experienced a depreciation of about 1.10%.
During the current financial year, the rupee has depreciated by 3.67% while about 1.12% of the fall has taken place in January alone.
Reports indicate that the decline of the rupee from 85 to 86 took place in just 16 trading sessions while the movement from 84 to 85 happened over a period of 46 days. On the other hand, the weakening of the rupee from 83 to 84 took place over a period of 478 trading days.
There are several factors that have accelerated the depreciation of several emerging market currencies including the rupee. Higher US bond yields and strengthening of the dollar due to a stronger-than-expected US jobs report and positive data on US services and manufacturing.
Withdrawal of significant funds by foreign investors from the Indian equities market – to the tune of USD 4 billion in January 2025 – have also been indicated as reasons for this depreciation. Analysts are of the opinion that the India rupee is at its most overvalued level in over two decades.
It is expected the rupee is likely to breach the 87 mark soon amid sustained pressures.
The Reserve Bank of India will be announcing its monetary policy in February 2025, close on the heels of the nation’s Budget announcement on February 1.
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