Rupee Nears 85 vs Dollar as GDP Concerns Push It to 84.70, a New Low

Post by: Raman Preet

The Indian rupee dropped to its lowest value ever of 84.70 against the dollar on Monday. This happened because people are worried about India’s slowing economy and the high demand for dollars in the non-deliverable forwards (NDF) market. Currency dealers said this was the biggest fall for the rupee in one day since June 4, which was the day of India’s general election results. Before this, the rupee had ended last Friday at 84.49 per dollar.

In the last month, the rupee has lost 0.73 percent of its value. Since the start of 2024, it has fallen by 1.8 percent. Experts say the Reserve Bank of India (RBI) has limited power to stop this drop. The RBI has taken short positions worth around $70 billion in the NDF market, which means it has little ability to protect the rupee from falling further.

India’s weak economic performance is making the situation worse. Between July and September, India’s economy grew by only 5.4 percent. This is the slowest growth in nearly two years and is lower than the 6.5 percent that experts had predicted. These disappointing results have made people more worried about the economy, which is adding pressure on the rupee.

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To try and stabilize the rupee, the RBI has been selling dollars from its foreign reserves. However, this has caused India’s forex reserves to shrink by $48 billion in just two months. During this time, the rupee has fallen from 83.70 to 84.46 against the dollar, showing a decline of 0.89 percent. Experts now believe that if things continue like this, the rupee could cross the 85 per dollar level soon.

The situation got worse after U.S. President-elect Donald Trump said he would put 100 percent tariffs on BRICS countries if they try to reduce their use of the U.S. dollar. This statement caused more tension and made the rupee’s problems worse.

Traders are now waiting for important information from the U.S., such as job openings and payroll data. They are also listening to speeches from officials of the U.S. Federal Reserve to get clues about future interest rate decisions. Many traders believe there is a 65 percent chance that the Federal Reserve will lower interest rates slightly in its meeting next month.

The U.S. dollar is very strong right now. Its value has gone up by 0.5 percent, according to the dollar index, which compares the dollar to six major world currencies. This makes it harder for the rupee and other currencies to hold their value.

Madan Sabnavis, an economist at Bank of Baroda, said Trump’s statement has made things worse for the rupee. “This has created fear at a time when the RBI is trying to make the rupee more important in the global market,” he said. He also noted that the rupee’s real value, adjusted for inflation (called REER), might have gone down in November. Official data on this is expected soon.

Experts are now focusing on the RBI’s next meeting on December 6, where it might announce new steps to improve the economy. Some experts say the RBI’s decisions could affect the rupee’s value further.

Anshul Chandak, a treasury expert, said, “I think the rupee will go beyond 85 per dollar by the end of December. The RBI is trying to control the situation, but its options are limited.”

The rupee has faced many challenges this year. On October 11, it crossed the 84 per dollar mark for the first time. Since then, it has continued to weaken because of problems both inside and outside the country. What happens in the next two weeks and at the December 6 meeting will play an important role in deciding what happens to the rupee next.

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