Rupee hits record low: Why is the Indian currency getting weak against US Dollar
Despite India's robust 8.2% Q2 GDP growth, the Indian Rupee hit a record low of 89.76 per dollar. This unexpected decline stems from significant FPI outflows exceeding $16 billion, pressure from the NDF market, and an expanding trade deficit. These factors combined to weaken the INR against the US dollar, overshadowing strong domestic market performance.
New Delhi: Even India's rapid GDP growth could not support the Rupee. The Indian currency slipped to the level of 89.76 per dollar for the first time on 1 December, which is its weakest level ever. Even when the country's Q2 GDP growth figure is 8.2 percent, this decline is shocking. The GDP growth figures brought the stock market and bond yields to new highs, but could not handle the rupee.
Rupee vs US Dollar: Why Indian currency declined
Year-on-year GDP growth of 8.2 percent for the July-September quarter strengthened the domestic market. The stock market hit a record high and the 10-year government bond yield rose to 6.553%. Despite this, it had almost no positive impact on the Rupee. The pressure in the currency market was so high that the Rupee crossed the record of the last two weeks and touched a new low level.
One of the main reasons for the weakness of the Rupee is the selling of FPI. Last Friday, foreign investors sold about 400 million dollars in Indian shares, after which the total outflow of the year exceeded 16 billion dollars. Due to these continuous outflows, there is a huge pressure on the Rupee.
Impact of NDF Market and Forward Book
According to traders, the maturing of large positions in the Non-Deliverable Forwards (NDF) market also affected the Rupee. Data released after the market closed showed that the RBI's forward book had exceeded $63 billion in October, indicating that the central bank has had to constantly intervene to handle the currency.
US tariffs and rising trade deficit
The comments of Indian and American officials last month gave hope that the US tariffs imposed on Indian exports by 50 percent would be reduced soon. But due to the lack of a concrete agreement, the market was disappointed and its impact was shown on the Rupee as well. Not only this, India's trade deficit reached the highest level ever in October, which further weakened the currency.