Indian Rupee Struggles Amid Global Challenges
The Indian rupee has recently experienced a significant decline, falling below the critical threshold of 84 against the US dollar for the first time on Friday. This decline is largely attributed to rising oil prices and an ongoing exodus of foreign investments from the Indian equity market. These factors have added pressure to the local currency, which saw a notable drop to a low of 84.0525, closing at 84.05—down from 83.9675 in the previous trading session. This current level represents a surpassing of the previous all-time low of 83.9850 reached on September 12.
Factors Influencing the Rupee’s Performance
Several factors are contributing to the rupee’s performance, including fluctuations in the dollar index, which recently decreased by 0.11%, reaching 102.87 points. Analysts, including Amit Pabari, the Managing Director of CR Forex Advisors, express concerns over global headwinds impacting currency stability. Despite these challenges, Pabari notes that the rupee may not fall significantly lower, owing to the Reserve Bank of India’s (RBI) substantial foreign exchange reserves, which act as a buffer against further depreciation.
Short-term and Long-term Outlook
In the short term, Pabari predicts that the USD/INR exchange rate will likely remain within a defined range of 83.80 to 84.05. Looking further ahead, there is optimism regarding the rupee’s future performance due to anticipated substantial inflows into the market. Pabari suggests that this growth could lead the currency pair to trade between 83.50 and 84.05, with a bias toward the lower end of this range, should the inflows materialize as expected.
Impact of Oil Prices and Market Sentiment
Compounding the rupee’s struggles are the fluctuations in global oil prices, which have shown a slight easing but remain on track for a second consecutive weekly increase. As of Friday, Brent crude oil prices slightly decreased by 0.09%, settling at $79.33 per barrel. Nevertheless, Brent prices have surged more than 10% throughout October, which is contributing to inflationary pressures that could further challenge the rupee’s stability.
Domestic Equity Market Performance
The domestic equity market reflects similar challenges, with the 30-share BSE Sensex declining by 259.05 points, or 0.32%, landing at 81,352.36. Meanwhile, the Nifty 50 index experienced a drop of 67.40 points, or 0.27%, to settle at 24,931.05. Foreign Institutional Investors (FIIs) have been net sellers in the Indian market, offloading shares worth ₹4,926.61 crore on Thursday, according to exchange data. This trend signals a cautious market sentiment, further impacting the rupee and raising concerns about the sustainability of recent gains in the domestic economy.
Conclusion
As the Indian rupee navigates through these turbulent economic waters, experts remain vigilant, keeping an eye on global trends and local market sentiments. While short-term fluctuations are likely, the potential for substantial inflows in the coming months could provide much-needed support for the currency. Hence, the economic landscape continues to evolve, with various factors at play, making it essential for stakeholders to stay informed and prepared.
