Indian Rupee Hits Record Weakness, Experts Warn of Further Decline

This decline happened due to the strong performance of the U.S. dollar and potential outflows from Indian markets.

Update: 2025-01-13 09:27 GMT

The Indian rupee dropped below the key level of 86.50 against the U.S. dollar. This decline happened due to the strong performance of the U.S. dollar and potential outflows from Indian markets. Foreign investors sold over $4 billion worth of Indian stocks and bonds in January.

On Monday, the rupee fell to 86.54, its weakest value so far. It marked a decline of 0.7% in a single day. This was the rupee's worst performance in nearly two years.

The U.S. dollar index rose by 0.2%, nearing the 110 mark. It reached its highest level in more than two years. Other Asian currencies also weakened. The Indonesian rupiah fell by 0.6%, showing similar trends.

A strong U.S. jobs report pushed the dollar higher. It also increased U.S. bond yields. This added to the pressure on the rupee. Foreign investors’ weak inflows and higher hedging activity contributed to the decline.

For three months, the rupee has been losing value steadily. Experts predict it may weaken further. Jefferies expects the rupee to fall to 88 in the near future. ANZ Bank believes this could happen by March.

Analysts say the rupee is overvalued based on its real effective exchange rate (REER). This has impacted its competitiveness globally. Changes in India’s central bank leadership may lead to a more flexible exchange rate policy.

The loss of competitiveness and slowing economic activity are major concerns. ANZ Bank says a weaker rupee may address these issues.

The rupee's challenges are part of a broader trend in global currency markets. Rising U.S. dollar strength continues to affect many currencies. The Indian rupee’s future depends on these global and domestic factors.

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