Hitting All-Time-Low is Showing Depreciation of Indian Rupee Against US Dollar. Here’s Why.
It was all a speculation, or possibility if you will, but the Indian Rupee just breached ₹85/- against the US Dollar. Depreciation of the Indian Rupee against the US Dollar went as low as ₹85.05 when values were checked last time. This is slightly better than ₹85.17 but the rising value of INR is still a concern. The US Dollar is not the only currency that is expensive at the moment. Values against the Euro and British Pound are ₹88.33 and ₹107.12, respectively.
The focus is majorly on INR’s value against the Greenback.
Value was already poised to soar and the development has not come as a surprise for experts. Hitting an all-time low comes backed by several factors. This includes a possible tariff war after Donald Trump takes the U.S. presidential office, a hawkish stand by the Federal Reserve, and an excessive trade deficit.
Simply put, it is a combination of global and domestic factors that is hampering the performance of the Indian Rupee against the US Dollar.
The US Federal Reserve has slashed lending rates by 25 bps, bringing down borrowings to 4.25% from 4.50%. The idea is to control inflation and Chair Jerome Powell is confident that they are starting to understand how the Trump Administration might play out. What’s concerning is the possibility of the number of cuts in 2025.
It was earlier speculated that the Federal Reserve will cut rates four times next year. Experts have changed their tones and also their stand in this regard. It is now speculated that only two cuts will happen in the following year. For a quick reference, rate cuts make borrowing cheaper. This boosts investments which leads to growth.
While growth has a way to become more notable in other ways, lending rates remain at the center.
That said, the Federal Reserve has increased its forecast for PCE to 2.8% and 2.5% for 2024 and 2025, applicable in the same order. This signals a continuation in inflation and hence, more concerns for the Indian Rupee.
Trade Deficit now stands at $37.84 billion as reported in November 2024. This is up from $27.14 billion in the previous month, that is October 2024. A lot of it is credited to the rise in imports of Gold. Trade Deficit basically indicates a difference between imports and exports. The higher the imports, the higher the Trade Deficit. An ideal scenario is to balance imports and exports - the best scenario is to have a minimal difference between them.
The Reserve Bank of India has also been credited as a reason for the depreciation of INR in some reports. It is claimed that India’s Reserve Bank is intervening in Forex markets to keep Rupee’s depreciation under control. This is believed to be affecting the Indian Rupee more as the RBI is also tasked with controlling inflation.
The growth rate of India, that is Bharat, was last reported at 5.4% for July - September 2024. This is lower than expected growth rate which was way above 6%. Targeted inflation was 4% but the number was last seen hovering around 6.2%. Hence, the intervention of the RBI is believed to be mixing a lot of elements in the forex segment.
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Finally, it’s the planned tariff policy that could be implemented by Donald Trump. He intends to raise tariff rates for countries in response to high tariffs by respective nations.
Tensions are evident across Canada and China. India also has come to the edge of its seat. There are a few knots that the Trump Administration will have to untie if increasing tariffs is a serious plan. Nevertheless, it remains a strong point of consideration for every country.
The value of the Indian Rupee is likely to depend on global factors more than domestic factors in the next few months. This includes high tariffs, tax cuts, and tough immigration policies. Watch the movement of the Indian Rupee against the US Dollar closely on the chart. Things will only get interesting as Trump gets closer to taking the US Presidential Chair.
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