The Indian rupee dipped below 90 against the dollar on Wednesday, affected by weak trade and investment flows, despite India’s robust economic growth as the world’s fifth-largest economy.
The rupee hit a record low of 90.14 per U.S. dollar, surpassing its previous low of 89.9475 from Tuesday. It was last trading at 90.07, a 0.22% drop for the day, marking its sixth consecutive decline.
This downward trend highlights a gap between India’s domestic and external economic conditions. Although GDP growth exceeded expectations, U.S. tariffs and weak capital inflows have increased pressure on the rupee.
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The rupee has depreciated around 5% this year, on track for its steepest annual drop since 2022, making it the worst-performing currency in Asia.
“Without a trade deal, this economic adjustment is necessary for India,” stated Dhiraj Nim, an FX strategist and economist at ANZ.
ANZ forecasts the rupee will drop to 91.30 by the end of next year, assuming U.S. trade tariffs remain, and warns it could happen sooner.
Weak foreign flows
Foreign investors have withdrawn approximately $17 billion from Indian stocks this year, while net foreign direct investment remains weak. Additionally, external commercial borrowing has been sluggish, emphasizing how broad capital outflows have intensified pressure on the rupee.
This pressure on the capital account coincides with a widening trade deficit, reaching over $40 billion in October.
The expanding trade deficit has further disrupted the dollar demand-supply balance, adding more pressure on the rupee.
“India’s weak macroeconomic picture makes a weak currency performance unavoidable. Several indicators have declined recently—rising trade deficits, slowing GDP growth, weak FDI, and foreign selling of domestic stocks,” noted Sat Duhra, portfolio manager at Janus Henderson Investors in Singapore.
Limited intervention
The central bank’s interventions, typically involving selling dollars to support the rupee, have been sporadic, according to four bankers, allowing the currency to fall below a crucial level.
The RBI has intervened in short, staggered bursts recently, rather than launching a robust defense, they mentioned.
The Reserve Bank of India has substantial foreign exchange reserves to curb the currency’s decline.
“It’s crucial for the central bank to prevent speculators from becoming too comfortable with a one-direction trend, as that could cause unnecessary USD-INR volatility,” commented Anindya Banerjee, head of commodity and currency at Kotak Securities.
