The rupee continued its downward journey against the US dollar on Thursday, slumping to a record low of 90.43 in early trade. The Indian rupee crossed the significant 90-level barrier against the US dollar on Wednesday, reaching an intra-day low of 90.29 before closing at 90.19. This continued depreciation raises concerns about its impact on the broader economy.According to an SBI research team analysis, this represents the fastest Rs 5 decline against the dollar, with the Indian currency falling from 85 to 90 in under a year, despite the RBI’s interventions to stabilise the currency. The rupee’s value continues to be influenced by external factors, unlike the stock market index. Ongoing Foreign Portfolio Investment withdrawals, substantial trade deficits from high-cost imports of oil, metals and electronics, alongside a strong dollar maintain pressure on the currency.
Since April 2, following Trump’s reciprocal tariff announcement, the currency has depreciated by 5.5%. Foreign portfolio investors have withdrawn more than $17 billion this year, whilst private equity firms have cashed out their investments through substantial IPOs from prominent startups, contributing to capital outflows from India. The situation has worsened in recent months due to increased gold and silver prices, resulting in unprecedented imports and trade deficit in October.But the government is not worried. V Anantha Nageswaran, the chief economic adviser, said that the government ‘is not losing sleep’ over rupee’s decline. Nevertheless, he anticipated improvement in the currency’s value next year. Regarding foreign direct investment, Nageswaran expressed optimism, stating, “We may cross $100bn this year.”The depreciation of currency increases import costs across sectors from petroleum to consumer electronics, leading to inflationary pressures and higher expenses for international education, healthcare, and tourism. However, it proves beneficial for overseas remittances and export revenues during a period when the economy faces challenges from substantial 50% US tariffs.Experts indicate that whilst currency depreciation risks importing inflation, a regulated decline addresses multiple challenges for the central bank. The benefits include enhanced share values in dollar terms, management of current account deficit and preservation of central bank reserves.
