The Indian rupee touched a record low of ₹85 against the US dollar on Thursday, December 19, as both global and domestic pressures weighed heavily on the currency. The rupee opened at ₹85, marginally weaker than Wednesday’s close of ₹84.95.
Global Factors at Play:
- Hawkish Fed Stance: The US Federal Reserve, at its December meeting, maintained a hawkish outlook. It revised its forecast to include only two rate cuts in 2025, down from the previously expected four, signaling concerns over prolonged inflation. The central bank also raised its 2024 core PCE inflation projection to 2.8%, further rattling global markets.
- Dollar Index Surge: The dollar index climbed to a two-year high, driven by the Fed’s cautious approach, putting pressure on emerging market currencies, including the rupee.
Domestic Challenges:
- Record-high Trade Deficit: India’s merchandise trade deficit surged to $37.84 billion in November, a sharp increase from October’s $27.14 billion. The deficit widened due to a surge in gold imports and continued weakness in exports.
- Economic Slowdown: India’s sluggish GDP growth has dampened investor sentiment, leading to reduced capital inflows. Foreign investors are expected to remain net sellers of Indian equities in the current quarter, further weakening the rupee.
- Volatile Equity Flows: The equity market has seen inconsistent foreign portfolio investments, exacerbating the pressure on the rupee.
