The Indian rupee plummeted to a record low of 85 against the US dollar on Thursday, December 19, 2024, marking a significant milestone in the currency’s downward trajectory. This decline stems from a confluence of domestic and global headwinds.
- Hawkish Fed Stance: The US Federal Reserve’s decision to maintain a hawkish monetary policy, with projections for fewer rate cuts in 2025 than previously anticipated, has strengthened the dollar significantly. This has adversely impacted emerging market currencies, including the rupee.
- Record-High Trade Deficit: India’s merchandise trade deficit surged to a record $37.84 billion in November, driven by a surge in gold imports and sluggish export growth. This widening deficit exerts considerable pressure on the rupee.
- Economic Slowdown: India’s economic growth has been sluggish, dampening investor confidence and leading to inconsistent foreign portfolio inflows. This has weakened demand for the rupee.
- Equity Market Volatility: Fluctuations in the Indian equity market have further exacerbated the situation, impacting foreign portfolio investments.
Given the prevailing global uncertainties and domestic challenges, the rupee is likely to face further downward pressure. Analysts caution that the 85 level could trigger increased hedging activity, leading to heightened volatility in the foreign exchange market. While a weaker rupee may benefit exporters, it poses significant challenges for importers, overseas students, and travelers
Also, read about the Cashless Economy
