On October 11, 2024, the Indian Rupee hit an all-time low against the US Dollar, falling to 84.0525 per USD, breaking the critical 84-mark that the Reserve Bank of India (RBI) had been defending through active interventions. The Rupee closed at 84.05 after a day of sharp declines, largely driven by surging oil prices and heavy foreign outflows from Indian equity markets. This drop coincides with a 3.5% rise in Brent crude oil prices, which hit $79.1 per barrel, fueled by escalating geopolitical tensions in the Middle East. In October alone, oil prices surged by over 10%, raising concerns about disruptions in global supply chains.
For India, a country highly dependent on oil imports, the spike in crude prices is particularly alarming. In the 2023-24 fiscal year, India imported crude worth $139 billion, making the rise in oil prices a significant burden on the economy. The higher oil prices have added inflationary pressure and weakened the Rupee further, as India requires more US Dollars to finance its oil imports.
The RBI had been trying to prevent the Rupee from breaching the 84-mark by intervening in the currency markets. Just weeks earlier, the Rupee showed signs of stabilization, trading at around 83.50 per USD. However, renewed pressure from soaring oil prices and sustained foreign fund outflows led to the Rupee’s fall. Reports suggest that the RBI has informally instructed banks to avoid large speculative bets against the Rupee in an attempt to manage the volatility. Despite these efforts, the depreciation has continued, driven by global factors outside the RBI’s control.
Another significant factor behind the Rupee’s decline is the withdrawal of foreign funds from India’s equity markets. Foreign institutional investors (FIIs) have been pulling money out, contributing to the Rupee’s weakness. Global investors are flocking to safe-haven assets like the US Dollar amidst the uncertainty in the global economy. Adding to the pressure is the US Federal Reserve’s stance on interest rates. Earlier in the year, there was speculation about a potential rate cut by the Fed, but recent developments suggest that a rate cut may not occur in November, making the Dollar more attractive to investors. This shift in market sentiment has led to further outflows from emerging markets like India.
While India’s foreign exchange reserves remain robust at $704.9 billion as of late September, the Rupee continues to face downward pressure. If oil prices remain elevated and foreign outflows persist, the currency’s depreciation may continue despite strong reserves
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