Indian Rupee Continues Downward Trend Amid Geopolitical and Economic Pressures

Indian Rupee Continues Downward Trend Amid Geopolitical and Economic Pressures

The Indian rupee has recently hit a record low, falling past 84 against the US dollar, driven by rising oil prices linked to geopolitical tensions and significant capital outflows as investors shift their focus to China.

Upasna Bhardwaj, chief economist at Kotak in Mumbai, noted that ongoing global challenges, including geopolitical risks and a slow pace of monetary easing in the US amid strong economic data, are likely to put further pressure on the rupee. This month alone, foreign portfolio investors have withdrawn $9.1 billion from Indian equities, spurred by high valuations and a renewed interest in China’s economic recovery. Additionally, Indian bonds, which had attracted around $2 billion in inflows monthly since their inclusion in global indexes in June, have experienced two consecutive weeks of outflows.

Earlier this month, the rupee hit a low of approximately 84.10 to the dollar before closing at 84.07 on Monday. Analysts at Barclays suggest that the Reserve Bank of India may be allowing the rupee to decline, citing a recent surge in the currency's nominal effective exchange rate. They predict that the rupee may continue to slide, potentially reaching 84.40 against the dollar, while QuantEco Research sets a target of 84.50 and Kotak Mahindra Bank anticipates a decline to 84.25.