A persistent and robust demand for the dollar in the non-deliverable forwards (NDF) market caused the Rupee to drop to a new low of 85.73 against the US dollar on December 27, prolonging the decline for the ninth consecutive day.
Compared to the US dollar, the rupee has lost 3% of its value this year and is expected to report losses for the seventh consecutive year. At this rate, the rupee is on track to have its worst month in two years.
After the November trade imbalance grew more than anticipated to reach a record high of $37.8 billion, the rupee has been plunging to all-time lows. Even if imports are still high, a decline in worldwide demand has affected India’s export growth.
The MSCI EM Currency Index is on track for its largest quarterly decline in two years, having dropped more than 3% since the end of September.
In contrast to other developing market currencies, the Rupee has had a mild decrease despite the swift depreciation. In comparison to its G20 contemporaries, the Indian rupee has been relatively range-bound and volatile throughout FY25. In comparison to the South Korean Won and Brazilian Real, which fell 2.2% and 12.7% versus the dollar, respectively, the Rupee witnessed a slight loss of 1.2% since April 2024.
The impact on EM currencies has been exacerbated by the current geopolitical tensions, which have raised risk aversion and caused a flight to safety in currencies like the dollar. As of December 13, 2024, India’s foreign exchange reserves stood at $652.9 billion, up $6.4 billion during FY25. According to the Finance Ministry, the reserves are enough to satisfy around 96% of the external debt that was due as of June and more than 11 months’ worth of imports.
Pharmaceutical businesses, which rely heavily on exports for a significant portion of their revenue, view the rupee’s decline to record lows as a sign of optimism.
