The Rupee took a significant hit on Monday, experiencing its largest single-day drop in a fortnight. Closing at 87.33 per Dollar, the Indian currency weakened by about 46 paise. This sharp decline was primarily driven by multiple factors, including persistent FPI-related Dollar outflows from the Indian equity markets, uncertainty surrounding the global impact of US import tariffs, and the softness in the Chinese Yuan. Furthermore, the impending maturity of non-deliverable forward (NDF) positions also contributed to the pressure on the Rupee.
Experts in the financial sector are closely monitoring the situation, noting the various challenges that are influencing the Rupee’s performance. Arvind Kanagasabai, Executive Vice President of Tamilnad Mercantile Bank, highlighted the complexities at play, emphasizing the subdued growth in India’s exports compared to imports. The looming threat of US tariffs on Indian exports, combined with Dollar outflows from equity markets, has created a challenging environment for the Rupee.
Kanagasabai also underscored the limitations faced by the central bank in controlling external factors that impact the Rupee’s movements. While the Reserve Bank of India (RBI) intervenes periodically to mitigate excessive volatility, the current scenario presents unique challenges that go beyond the control of any central bank. The need to defend the Rupee through Dollar sales has resulted in a liquidity deficit in the banking system, necessitating liquidity infusion measures to maintain stability.
Rahul Kalantri, Vice President of Commodities at Mehta Equities, provided additional insights into the market dynamics influencing the Rupee’s depreciation. Despite the dollar index and crude oil prices reaching multi-month lows, investor uncertainty and the ongoing bilateral trade negotiations between India and the US have fueled market volatility. The upcoming release of consumer inflation data from both countries is expected to further shape market expectations regarding potential rate cuts by central banks.
Looking ahead, Kalantri anticipates continued volatility in the Rupee, with the currency expected to trade within a range of 86.90-87.70 against the Dollar. The interplay of factors such as the dollar index fluctuations, global market volatility, and upcoming economic data releases will likely keep the Rupee on a turbulent path in the coming days.
In conclusion, the recent plunge in the Rupee reflects the intricate web of economic and geopolitical factors influencing currency markets. As India navigates through a challenging external environment, market participants and experts remain vigilant, closely monitoring developments that could shape the trajectory of the Rupee in the days to come.
