The Indian rupee fell to a historic low of 86.59 against the US dollar on Monday, marking its steepest single-session decline in nearly two years. During mid-session trading, the rupee lost 55 paise, continuing its downtrend after having fallen by over ₹1 in the previous two weeks, from a closing value of 85.52 on December 30, 2024. The depreciation is attributed to the strengthening US dollar and surging global crude oil prices, which have contributed to widening trade deficits and higher import costs for India.
The rupee opened at 86.12 in the interbank foreign exchange market and later plunged to a record low of 86.59, reflecting a 0.65% drop. The currency regained some ground by the end of the session, trading 46 paise lower at 86.50. This marks the steepest drop in the rupee since February 6, 2023, when it fell by 68 paise. The ongoing decline in the rupee's value has raised concerns over its impact on inflation, the economy, and investor sentiment, as a depreciating rupee increases the cost of imports and strains foreign exchange reserves.
India’s foreign exchange reserves have recently fallen to a 10-month low, exacerbating concerns about the country’s economic stability. The decline in reserves, coupled with high import costs, especially for crude oil, has contributed to a growing trade deficit, putting additional pressure on the Indian economy. The rising import costs have led to an increase in the price of goods, including fuel, which directly impacts inflation. As the rupee weakens, these inflationary pressures are expected to persist, impacting both consumers and businesses, particularly those dependent on imports.
The rupee’s depreciation has also contributed to declining investor confidence in India’s financial markets. In the first week of January 2025 alone, foreign investors withdrew approximately $2 billion from Indian equities. Over a four-day period, the Indian stock market witnessed a loss of ₹24.69 lakh crore in market value due to foreign capital outflows and the rupee's continued decline. These capital outflows, combined with the currency’s depreciation, have raised concerns over the country’s investment climate, as investors increasingly seek safer alternatives in other emerging markets.
Despite the recent reduction in retail inflation, which dropped to 5.22% in December, India’s broader economic challenges remain. The weakening of the rupee and the outflow of foreign investments are continuing to undermine investor confidence. Furthermore, the trade deficit and the reduced appeal of Indian markets compared to other emerging economies have added to the economic uncertainties. With the rupee’s decline showing no immediate signs of reversal, analysts predict continued pressure on India's foreign exchange reserves, inflation, and overall economic growth in the near term.