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Why is the rupee falling?

Madan Sabnavis: It is falling for a variety of reasons. The first is that the fundamentals are definitely negative. When I talk of fundamentals, I am talking in terms of a higher trade deficit, possibly a higher current account deficit, and the movement of FPIs (foreign portfolio investments), which have tended to be negative rather than positive. These are the fundamental factors and these also get reflected in terms of our forex reserves coming down.

But I think the factor which has been driving the rupee down is more on the tariff front, where there were expectations that there would be a deal between India and the United States. That seems to be on the anvil, but still has not quite taken place. I think that is the reason why the sentiment has turned in the other direction.

In this entire business of the rupee depreciating, a critical factor which sort of moderates the level of fall of the rupee has been the intervention of the RBI (Reserve Bank of India). Now, we have seen that the intervention of the RBI in the forex market has tended to be limited. It does look like the fall of the rupee is within the acceptable limits of the RBI, though we should say upfront that the RBI maintains it is not defending any rate, but is out there to check any excess volatility in the market. These are the reasons why we have seen the rupee crossing from ₹87 to ₹88 to ₹89 and now ₹90.

Ranen Banerjee: The rupee is falling for two or three reasons. The primary one is ongoing portfolio outflows, which are increasing the demand for dollars. Second, our import growth has been higher than the export growth. And that also boosts the demand for the dollar. The current account deficit has been higher. So I think it’s the demand and supply of dollars and how much the RBI releases from its reserves to meet the demand. The uncertainty on the tariff agreement creates a forward-looking challenge. And it may impact the economy also. So that may influence some sentiment of the portfolio investors, who may be withdrawing from the Indian market. But I don’t think that is the key reason why portfolio investors are withdrawing. I think the key view that the investors are taking is that the valuations are higher and that they could have a higher return in other economies by deploying that capital in the immediate term. So, that is influencing portfolio flows. And of course, the uncertainty on the trade front adds to that sentiment.

Does a falling rupee indicate a weakness in the economy?

Madan Sabnavis: Definitely not. Because if you are looking at the overall state of the economy, if you go by the performance on the GDP front, it has been fairly remarkable, the kind of growth rates we have seen in the first half of the year. So, I don’t think it has anything to do with the real economy. The balance of payments is fairly robust. The RBI Governor had also pointed out that affordance reserves are covering 11 months of imports. So, I don’t see any problem out there. It is more of the sentiment that has been driving the rupee downwards. RB: I don’t think that there has been any structural change in the economy that is influencing the rupee. The fundamentals are very strong. We are having robust growth. Inflation is benign. The monetary policy is quite accommodative. The rate cuts have been done. The fiscal consolidation is in place. Capital expenditure is going on. The government is adhering to the fiscal roadmap that it had laid down. So I don’t think structurally anything major has changed. It is my belief that it is more transient factors that are impacting this (fall of the rupee), rather than structural factors.

Do you feel that there is any benefit to India from a falling rupee?

Madan Sabnavis: The only benefit which we would be getting on account of the falling rupee is more theoretical in nature. When I say theoretical, economic theory says that when the rupee depreciates, your exports gain a competitive advantage over the other countries. From the point of view of exports, if other currencies are not depreciating, but the rupee is depreciating, maybe around 4-5%, which we have seen in the current calendar year, this is an advantage for our exporters. The higher tariffs that have been imposed by the U.S. could be negated to a certain extent by the price competitiveness that we get on account of the rupee depreciation. Imports will become more expensive. Every commodity which we are importing is going to become more expensive by 4-5%. But purely from the point of view of inflation, if you look at the components of the CPI (Consumer Price Index) and what really gets affected on account of imports, our calculation shows that 5% depreciation on a sustained basis could push up inflation by something like 0.3-0.4%, which is not really very high. And given the fact that inflation is at an all-time low in India, this should not be a major worry for us.

Ranen Banerjee: The exporters may be happy that they are having a better realisation. And also, they may be happy that given some of the tariff headwinds, our products may become a little bit more competitive. If you look at, say, services, services exports is a very large segment of our economy and it has been doing very well, growing very fast. So companies that are exporting services are going to have better bottom lines in rupee terms. Who knows, they may be willing to share some of those benefits with their employees as higher bonuses. And then that may lead to further support for consumption. So, there are various channels through which benefits could come.

But then there are downsides also. We are a large importer. And therefore, during any rupee weakness, we have to shell out more rupees. And there could be some additional expenses that need to be done by companies that are importing. And if the demand holds, then to a very small extent, there could be some bit of imported inflation too, but it may not be very large. So we can’t really say whether it is benefiting India or not because different segments of the economy get impacted differently.

Is the falling rupee alarming and should the RBI step in or let it fall?

Madan Sabnavis: Every time the rupee reaches a new low, there is a tendency for a certain amount of alarm. And if the rupee is going down and there is little interference from the RBI, there would be a natural tendency for this to become self-fulfilling and the rupee will fall further. But in terms of internal dynamics, the currency should not be a major worry. From the point of view of exports, no alarm. From the point of view of inflation, no alarm.

But I think what is a worry is that when we have such a volatile currency, it becomes a bit difficult for both exporters and importers to do business, because normally we expect the rupee to be stable. The rupee should actually be appreciating, given the fact that the dollar is weakening. So, to that extent, I think it is definitely a disruption for us, especially for those who are in the business of importing inputs. But it is not going to rock the overall economic performance of the economy.

There may also be some pressure on the fiscal balance, but we will have to wait for the revised budget figures to understand the extent of the impact. There would definitely be some problem even in terms of fertilizer imports. But we don’t expect that to actually upset the fiscal arithmetic too much.

Ranen Banerjee: I don’t think we are in a situation where we need to be alarmed. We are the worst performing currency in the last three months, maybe. But if we take a two-year horizon, then I think other than the Korean currency, all other emerging market currencies have possibly depreciated against the dollar much more than the rupee. So, we must not forget that we almost had a flat exchange rate for over 12 months prior to the last six months. So I don’t think that there is need for alarm.

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At the interbank foreign exchange, the rupee opened at 88.66 against the U.S. dollar and touched an intra-day high of 88.63 and a low of 88.73 during the day. Representational file image.
| Photo Credit: Reuters

This image is used for representational purpose only.
| Photo Credit: Getty Images/iStockphoto

This image is used for representational purposes only.
| Photo Credit: Reuters

The local unit settled at 86.64 (provisional), registering a fall of 9 paise over its previous close. File
| Photo Credit: V.V. Krishnan

The rupee depreciated 9 paise to close at 86.64 (provisional) against the U.S. dollar on Thursday (January 30, 2025), weighed down by a strong U.S. dollar amid a hawkish tone of the U.S. Federal Reserve.

Forex traders said the rupee continued to face pressure due to sustained foreign fund outflows and the broad strength of the American currency in the overseas markets.

At the interbank foreign exchange, the rupee opened on a weak note at 86.58 and touched a high of 86.56 and a low of 86.65 against the American currency during the session.

The local unit settled at 86.64 (provisional), registering a fall of 9 paise over its previous close.

On Wednesday (Jan. 29), the rupee pared its initial losses to settle on a positive note, higher by 2 paise to close at 86.55 against the U.S. dollar.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.02% lower at 107.98.

“U.S. Dollar gained on the hawkish tone of the U.S. Federal Reserve. Fed kept interest rates unchanged at 4.25-4.5% at its Federal Open Market Committee [FOMC] meeting on Wednesday [Jan. 29],” said Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan.

The U.S. Fed kept rates on hold but was hawkish in its outlook as it said rates would be held higher for a longer period, downplaying expectations for future rate cuts.

“We expect the rupee to trade with negative bias on strength in the U.S. Dollar and selling pressure from FIIs. Month-end Dollar demand from importers may also weigh on the rupee,” Choudhary added.

There is uncertainty over tariffs by the U.S. administration, which may further pressure the rupee. However, any central bank intervention may support the rupee.

Traders may take cues from GDP and weekly unemployment claims data from the U.S.. Investors may remain cautious ahead of the Union Budget of February 1 and the RBI’s bond buying on Friday, which may lead to volatility, Mr. Choudhary added.

Brent crude, the global oil benchmark, fell 0.64% to $76.09 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex settled 226.85 points, or 0.30%, up at 76,759.81 points, while the Nifty rose 86.40 points, or 0.37%, to close at 23,249.50 points.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹2,586.43 crore in the capital markets on a net basis on Wednesday, according to exchange data.

Image for representative purposes
| Photo Credit: Reuters

The rupee extended its slide for the second straight session and depreciated 9 paise to settle at a fresh all-time low of 85.20 (provisional) against the U.S. dollar on Tuesday (December 24, 2024). The rupee was dragged by a strong greenback against major crosses overseas and subdued domestic equities.

According to analysts, increased demand for the dollar due to month-end payment obligations and the fear of an aggressive import tariff by the Donald Trump administration in the U.S. strengthened the greenback.

“Besides, surging crude oil prices pushed the rupee down further,” they added.

At the interbank foreign exchange, the rupee opened at 85.10 and touched the lowest ever level of 85.21 against the greenback during intra-day. The unit finally ended the session at a fresh all-time low of 85.20 (provisional) against the dollar, registering a loss of 9 paise from its previous close.

On Monday (December 23, 2024), the rupee settled 7 paise lower at 85.11 against the U.S. dollar.

Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, said the rupee fell to a fresh all-time low on weak domestic markets and a strong U.S. dollar due to increased demand from importers and surging crude oil prices.

He said a hawkish tone of the U.S. Federal Reserve and an improved U.S. economy may further support the dollar.

“FII outflows may also weigh on the rupee. However, any intervention by the RBI may support the rupee at lower levels. USD-INR spot price is expected to trade in a range of ₹85 to ₹85.40,” Mr. Choudhary said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.11 % at 107.93, amid soaring U.S. Treasury yields and the fear of delayed interest rate cuts by the U.S. Federal Reserve.

Brent crude, the global oil benchmark, rose 0.69% to $73.13 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex closed lower by 67.30 points, or 0.09%, at 78,472.87 points, while Nifty fell 25.80 points, or 0.11% to close at 23,727.65 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday (December 23, 2024), as they offloaded shares worth ₹168.71 crore, according to exchange data.

The rupee stayed on the upward track for a record seventh straight session and settled 10 paise higher at 83.55 (provisional) against the dollar. File
| Photo Credit: Reuters

The rupee stayed on the upward track for a record seventh straight session and settled 10 paise higher at 83.55 (provisional) against the dollar on Friday (September 20, 2024), as robust domestic equity markets and retreating crude oil prices boosted investors’ sentiment.

Forex traders said a weak greenback against Asian peers supported the Indian currency. They attributed the lower dollar index to investors’ shifting focus towards emerging market currencies after the U.S. Federal Reserve reduced benchmark interest rate by 0.50%.

At the interbank foreign exchange market, the Indian currency opened at 83.63 and hit the intra-day high of 83.48 against the greenback. The unit touched the day’s low of 83.63 before settling at 83.55 (provisional) against the dollar, registering a gain of 10 paise from its previous close.

The local unit gained 11 paise to settle at 83.65 against the U.S. dollar on Thursday (September 19). On Tuesday, it had appreciated 10 paise.

The Forex market was closed on Wednesday (September 18) due to a holiday declared by the Maharashtra government.

The Indian currency has been on a recovery path since September 11 when it had settled at 83.99 against the American currency, a tad higher than the lowest level of 84.09 recorded on August 5.

The rupee has gained 44 paise in the past seven consecutive sessions since September 12.

Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said the rupee traded at the highest levels in more than two months on Friday as domestic equities touched a fresh all-time high for the second straight session and the U.S. dollar showed weakness.

“Going ahead, the rupee is expected to trade with a positive bias on positive domestic markets and anticipation of fresh foreign inflows amid the 50-basis points rate cut by the Fed,” Mr. Choudhary said, adding, “Traders may take cues from speeches by Federal Open Market Committee (FOMC) members. USD-INR spot price is expected to trade in a range of ₹83.35 to ₹83.70”.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was up marginally by 0.18% to 100.50.

Brent crude, the international benchmark, declined 0.47% to $74.53 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex surged 1,359.51 points, or 1.63%, to settle at its highest-ever closing level of 84,544.31, while the Nifty soared 375.15 points, or 1.48%, to hit its fresh peak of 25,790.95.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday (September 19), as they offloaded shares worth ₹2,547.53 crore, according to exchange data.

The rupee rose by 7 paise to 82.73 against the U.S. dollar on August 30 amid a positive sentiment in equity markets.

Rising crude oil prices and strengthening dollar, however, weighed on the Indian currency, according to Forex traders.

At the interbank foreign exchange, the domestic unit opened stronger at 82.67 and hit the level of 82.74 against the greenback.

Later, the rupee was trading at 82.73 against the dollar, registering a gain of 7 paise from its previous close.

On August 29, the rupee closed at 82.80 against the U.S. dollar.

“Yesterday, in the latter part of the day, dollar fell sharply and that led to gains not only in major crosses but also in commodities,” Gaurang Somaiya, Forex and Bullion Analyst at Motilal Oswal Financial Services, said.

On the domestic front, GDP numbers will be important to watch and better-than-expected numbers could support the rupee, he said. GDP numbers are scheduled to be released on Thursday.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.08% to 103.61.

Brent crude futures, the global oil benchmark, rose 0.33% to $85.77 per barrel.

In the domestic equity market, the 30-share BSE Sensex was trading 291.53 points or 0.45% higher at 65,367.35 points. The broader NSE Nifty advanced 78.20 points or 0.40% to 19,420.85 points.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on August 29 as they bought equities worth ₹61.51 crore, according to exchange data.