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March 22, 2024

Rupee Plunges to Record Low of 83.48 Against US Dollar: Factors and Implications

The Indian rupee experienced a significant depreciation, plummeting by 35 paise to hit an unprecedented low of 83.48 against the US dollar. This decline, observed on Friday, echoed the surge of the greenback against major global currencies and a weakened stance of Asian peers in overseas markets. Contributing to this downward spiral was the outflow of foreign funds, exacerbating the strain on the local currency.

At the interbank foreign exchange market, the rupee commenced trading weakly at 83.28 against the US dollar, ultimately settling at the aforementioned historic low of 83.48, marking a notable fall from the previous day’s close at 83.13. Intraday fluctuations saw the rupee dipping to as low as 83.52 against the American currency, underscoring the currency’s vulnerability.

Anuj Choudhary, a Research Analyst at Sharekhan by BNP Paribas, pointed out that the strengthening of the US dollar was fueled by the weakening euro and pound. The euro faced a decline following the Swiss National Bank’s unexpected decision to cut interest rates by 25 basis points to 1.5 percent, raising expectations of a similar move by the European Central Bank in June 2024. Similarly, the pound depreciated after the Bank of England maintained its interest rates at 5.25 percent, with two previously hawkish committee members refraining from advocating for a rate hike. Additionally, robust economic indicators from the United States further bolstered the position of the US dollar in the global markets.

Simultaneously, the dollar index, which measures the dollar’s strength against a basket of six major currencies, exhibited a 0.31 percent rise, reaching 104.32 on the same day. Despite this, Brent crude futures, the global oil benchmark, experienced a marginal decline of 0.05 percent, settling at USD 85.74 per barrel.

An assessment of the future trajectory of the rupee suggests a negative bias owing to the dominance of the robust US dollar and anticipations of a resurgence in crude oil prices. However, Choudhary noted that a positive sentiment in the domestic markets could offer some support to the rupee at lower levels. Moreover, intervention by the Reserve Bank of India (RBI) through the selling of dollars may also serve to bolster the rupee’s position in the forex market.

Turning to the domestic equity scenario, the 30-share BSE Sensex concluded 190.75 points or 0.26 percent higher at 72,831.94, while the broader NSE Nifty observed a rise of 84.80 points or 0.39 percent, reaching 22,096.75. Despite these positive trends, Foreign Institutional Investors (FIIs) emerged as net sellers in the capital market on Thursday, offloading shares worth Rs 1,826.97 crore, as per exchange data.

In summary, the rupee’s plunge to a record low against the US dollar reflects a complex interplay of global economic factors and market sentiments. While immediate challenges persist, the response of regulatory bodies and the resilience of the domestic market will play pivotal roles in shaping the currency’s trajectory in the coming days.

Jhumpa Lahiri

Jhumpa Lahiri

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