January 13th 2025.
In Mumbai, the rupee experienced a sharp decline against the US dollar on Monday, marking its biggest single-day fall in almost two years. The currency closed at a historic low of 86.62 against the greenback, a staggering 58 paise decrease from its opening rate of 86.12. This decline was attributed to a stronger US dollar and rising crude oil prices.
Throughout the day, the rupee fluctuated between 86.12 and 86.11 before ultimately settling at its lowest-ever level of 86.62 against the US dollar. This 58 paise drop was the largest since February 6, 2023, when the currency lost 68 paise. Additionally, the rupee has seen a significant decline of over Re 1 in the past two weeks, starting from 85.52 on December 30.
For the first time on December 19, 2024, the rupee fell below the 85-per-dollar mark, making it a historic moment. This was followed by a minimal gain of 5 paise on Friday, but the currency continued to decline in the preceding days, losing 6 paise on Tuesday and 17 paise on Wednesday.
The sharp fall in the rupee was driven by investors' preference for the US dollar, as well as a significant withdrawal of foreign capital from the Indian equities market. On Friday alone, foreign institutional investors sold equities worth Rs 2,254.68 crore. In total, foreign investors have withdrawn Rs 22,194 crore from Indian equities this month.
Experts believe that the Reserve Bank of India has allowed the rupee to weaken against the US dollar due to dwindling forex reserves and declining emerging market currencies. Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, stated that the RBI will continue to allow the currency's weakness as demand increases and supplies decrease.
On the other hand, the US dollar has been strengthening due to better-than-expected job growth in the US market and rising benchmark treasury yields. This was further fueled by the US imposing more sanctions on Russia, causing Brent oil prices to rise towards USD 81 per barrel. All of this comes at a time of heightened caution among investors in anticipation of restrictive trade measures by the new US administration under President Donald Trump.
Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, noted that the rupee has reached a fresh low due to a strong dollar and weak global markets. The trend of foreign investors selling remains, while crude oil prices have also increased by nearly 2 per cent. Looking ahead, Choudhary predicts that the rupee may continue to be affected by rising crude oil prices and global risk aversion, with a projected trading range of Rs 86.25 to Rs 86.80 against the US dollar.
At the same time, the dollar index, which measures the greenback's strength against a basket of six currencies, has been trading at its highest level in over two years at 109.80. The 10-year US bond yields have also risen by 0.48 per cent, reaching a level not seen since October 2023 at 4.79 per cent. In the futures market, Brent crude, the global oil benchmark, rose by 1.12 per cent to USD 80.65 per barrel.
In the domestic market, the 30-share BSE Sensex dropped by 1,048.90 points, or 1.36 per cent, to close at 76,330.01 points, while the Nifty declined by 345.55 points, or 1.47 per cent, to 23,085.95 points. On the macroeconomic front, retail inflation decreased to 5.22 per cent in December from 5.5 per cent in November 2024. However, industrial production growth accelerated to a six-month high of 5.2 per cent year-on-year in November 2024, driven by increased festive demand and a pick-up in the manufacturing sector.
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