The Indian rupee (INR) faced a significant drop on Friday, hitting a new record low against the US dollar (USD) at 84.38 before ending the day at 84.3750. This decline marks the currency’s worst weekly performance since May, primarily driven by ongoing foreign outflows from local stock markets and a strengthened dollar.
The rupee’s depreciation follows a turbulent period post-US election results, as the dollar gained strength following Donald Trump’s victory. Expectations of pro-business policies and potential interest rate hikes in the US have fueled the dollar's rally, increasing pressure on emerging market currencies like the rupee.
To stabilize the currency, state-run banks reportedly intervened in the forex market, selling dollars—likely on behalf of the Reserve Bank of India (RBI)—which helped limit the rupee’s losses. This strategic intervention highlights the RBI's ongoing efforts to cushion the rupee amidst fluctuating global conditions and investor sentiment.
The Indian equity markets closed lower on Friday, with the Nifty 50 and BSE Sensex declining by 0.2% and 0.1%, respectively, marking their fifth weekly loss in six weeks. The Nifty has now fallen 8.1% from its record high reached in late September. This downward trend aligns with sustained foreign investor outflows, as overseas investors pulled over $1.5 billion from Indian equities in November, following $11 billion in outflows during October.
This dip is partly attributed to the strengthening U.S. dollar after Donald Trump’s victory in the U.S. election. Trump’s win boosted U.S. bond yields and fueled expectations of potential fiscal stimulus, leading to a stronger dollar, which negatively impacted many emerging market currencies. The dollar index hit a four-month high of 104.5 earlier in the week, though it later pared some gains.
Asian currencies also felt the impact, with the offshore Chinese yuan down by 0.2% to 7.1689.
In India, the Reserve Bank of India (RBI) may intervene to defend the rupee around the 84.50 level, though analysts expect gradual depreciation as dollar strength continues. Abhilash Koikkara, head of forex and rates at Nuvama Professional Clients Group, noted this potential trend of gradual rupee weakening. Additionally, dollar-rupee forward premiums declined, with the 1-year implied yield down by 3 basis points to 2.19% as interbank and exporter interest increased in the forward market.
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