As worries about the nation’s economic future grew and other Asian currencies began to fall, the Indian rupee fell to a record low against the US dollar on Wednesday. By the end of trading, the rupee made a slight rebound, closing at 84.83 after plunging to its lowest point ever, 84.8650.
The Chinese yuan pushed the Indian rupee, which fell 0.4% to 7.28 after it was reported that China would permit additional currency devaluation next year to lessen the impact of rising tariffs. The yuan’s drop caused a wave of depreciation across other Asian currencies, which exacerbated already existing regional issues.
The rupee underperformed several of its regional competitors in December, losing 0.4% of its value. The nomination of a new Reserve Bank of India (RBI) governor and worries over slowing economic development have been the main causes of this. The rupee is under additional pressure as a result of these factors, which have raised expectations of possible rate cuts in 2025.
The Indian central bank intervened to prevent further reductions despite these obstacles. To support the rupee and stop larger losses, the Reserve Bank of India (RBI) sold dollars through state-run banks. However, because the rupee is still facing pressures from both local and international sources, the RBI’s intervention was insufficient to reverse the wider downward trend completely.
In the meantime, expectations of future Federal Reserve initiatives continued to strengthen the U.S. dollar. As markets prepared for the announcement of U.S. inflation data later on Wednesday, the dollar index increased by 0.2% to 106.5.
Dollar-rupee forward premiums increased in tandem with the rupee’s decline, indicating increased demand in the non-deliverable forwards (NDF) market. Because traders were taking advantage of arbitrage opportunities between outright forwards and NDF contracts, the 1-year implied yield rose by 11 basis points to 2.17 percent.
