The Indian rupee reached an all-time low of 85.12 against the US dollar, dropping 18 paise in Thursday’s trading on the National Stock Exchange (NSE). The currency’s decline followed a hawkish commentary by the US Federal Reserve on its rate-cut outlook, signaling global economic ripples.
At its meeting on Wednesday, the Federal Open Market Committee (FOMC) emphasized its focus on achieving maximum employment and maintaining price stability. The committee halved the anticipated rate cuts for 2025, reflecting its cautious approach to economic conditions. This announcement spurred a significant rally in the dollar, pushing the dollar index above the 108 level.
The strength of the dollar extended its impact across global currencies, including the Indian rupee. Other foreign currencies also showed signs of depreciation, highlighting the widespread effect of the Fed’s monetary stance.
Opening Weak and Closing Weaker
The rupee opened on a weak note at ₹85.06, further dampened by domestic market trends and external economic pressures. Investor sentiment was negatively influenced by falling domestic stock markets, consistent demand for the US dollar from importers, and the withdrawal of foreign capital.
On the previous trading day, the rupee had already closed at a record low of 84.94 against the dollar, setting the stage for further decline. Experts suggest that the rising dollar index and a spike in the US 10-year bond yield to 4.52% are key contributors to the pressure on the Indian currency. However, analysts believe these conditions are temporary.
Stock Market Declines Add to Investor Worries
The Fed’s hawkish tone also triggered sharp declines in major US stock indices. The Dow Jones Industrial Average fell by 2.58%, closing at 42,326.87. Similarly, the S&P 500 dropped by 2.95% to 5,872.20, while the Nasdaq tumbled 3.56%, settling at 19,392.69.
In India, the stock market mirrored the downtrend. By early afternoon trading on Thursday, the Sensex had dropped 881.51 points or 1.10%, trading at 79,300.6. The Nifty also saw a decline, falling by 232.70 points or 0.96%, trading at 23,966.15.
FII Outflows and Domestic Investor Activity
Foreign institutional investors (FIIs) pulled out ₹1,316.81 crore from Indian equities on December 18, adding to the rupee’s woes. On the other hand, domestic institutional investors (DIIs) provided some relief by purchasing equities worth ₹4,084.08 crore, reflecting a more optimistic stance within local markets.
What Lies Ahead for the Rupee?
While the rupee’s depreciation reflects immediate market reactions to the Fed’s policy, analysts expect this to be a temporary phase. The strengthening dollar and rising bond yields present challenges for foreign fund inflows, but domestic market resilience could help mitigate long-term impacts.
For investors and policymakers, this situation underscores the importance of global economic interconnectedness and the need for prudent strategies to navigate such turbulent times.
The Information is Collected from The Hindu and India Today.
