The rupee fell to its lowest-ever value on Friday as the dollar strengthened further following the US elections. Foreign investors pulling funds from Indian stocks and bonds also contributed to the rupee’s drop.
The rupee weakened to Dh23.0238 (84.4975 per US dollar) against the UAE dirham during early trading on Friday, breaking Thursday’s record of Dh23.0224 (84.4925). As of 10:40 am IST, the rupee traded at Dh23.02 (84.49), holding steady for the day.
Factors Behind the Rupee’s Decline
The dollar’s rise began after Donald Trump’s victory in the US presidential elections. Foreign investors have withdrawn over $4 billion from Indian markets this month, further pressuring the rupee.
The dollar has gained more than 3% since the November 5 election. Market expectations of inflation and reduced Federal Reserve rate cuts due to Trump’s policies fueled its rally. After a brief pause earlier this week, the dollar’s upward trend resumed on Wednesday, driven by geopolitical tensions and cautious signals from the Federal Reserve.
RBI Interventions to Curb Rupee’s Fall
So far in November, the rupee has lost about 0.5%, but the Reserve Bank of India (RBI) has taken measures to limit the slide. India’s other Asian counterparts have seen losses ranging from 0.9% to 2.2% this month.
Rajani Sinha, Chief Economist at CareEdge Ratings, said, “The strong dollar continues to weigh on global currencies. However, RBI interventions, supported by India’s robust foreign exchange reserves, should help manage rupee volatility.”
State-run banks, on behalf of the RBI, were seen selling dollars, especially around the 84.50 level. According to a senior trader at a public sector bank, there is low interest in selling dollars among interbank traders, making RBI’s role crucial to stabilize the market.
The Impact on Trade Competitiveness
Despite the RBI’s actions, the rupee remains overvalued against the currencies of India’s key trading partners. Data from October showed the real effective exchange rate (REER) was overvalued by 7.21%, indicating reduced competitiveness in international trade.
As the dollar remains strong, the central bank’s continuous interventions aim to ensure that the market remains stable and avoids sudden fluctuations. However, traders expect limited inflows and sustained activity from the RBI to prevent further depreciation.
