The Indian rupee opened at a record low against the US dollar on Monday, driven by growing concerns over a potential US recession that could trigger significant foreign outflows from emerging markets. The rupee began trading at 83.78 per dollar, down slightly from its previous close of 83.75, and soon slipped past the all-time low of 83.7525 it had reached last Friday.
This sharp decline in the rupee’s value comes as global markets remain on edge, with investors increasingly wary of the economic outlook in the United States. The latest US jobs report, which showed weaker-than-expected employment growth, has heightened fears of a looming recession. These concerns have led investors to seek safer assets, causing a sharp selloff in global equities and a flight to US Treasuries.
The impact of these global developments was immediately felt in the Indian stock market, where benchmark indices Sensex and Nifty 50 opened with significant losses on Monday. The decline in Indian stocks mirrored the broader slump across Asian markets, which have been rattled by the renewed fears of a US economic downturn.
Adding to the pressure on the rupee, the dollar index, which measures the strength of the greenback against a basket of major currencies including the euro and the yen, dropped by 1.15% to 103.22. Despite this decline in the dollar index, the rupee failed to appreciate, a situation that analysts attribute to intervention by the RBI.
Amit Pabari, Managing Director at CR Forex Advisors, noted that despite the weakening of the US dollar and positive developments for the rupee, like a 1.5% appreciation of the Chinese yuan and a more than 4% rise in the Japanese yen against the dollar, the Indian currency remained largely anchored around the 83.70 levels. He suggested that the RBI may have been capping the rupee’s movement to prevent further depreciation.
In addition to the global economic concerns, the Indian market is also being affected by worries about FII outflows. On Friday, FIIs were net sellers of Indian equities, offloading shares worth ₹3,310 crore. In contrast, DIIs stepped in, purchasing shares worth ₹2,965.94 crore, according to provisional data from the exchanges.
This trend of FII outflows has raised concerns about the potential for further depreciation of the rupee, especially if global economic conditions continue to deteriorate. A trader at a public sector bank told Reuters that the RBI might allow the USD/INR exchange rate to move higher, potentially reaching 83.90 in the near term, as the central bank manages the rupee’s slide.
Despite the challenging environment, some analysts see potential silver linings for the rupee. Pabari pointed out that the recent 11% correction in global oil prices could be a significant positive for the Indian currency, given that India is the world’s second-largest oil importer.
Lower oil prices could reduce India’s import bill, providing some relief to the rupee. However, this factor alone may not be enough to offset the broader pressures from global economic uncertainty and FII outflows.
In global currency markets, other major currencies are also experiencing significant movements. The Japanese yen was up nearly 1% at 145.11 per dollar after reaching its highest level since mid-January. The yen’s recent strength, which has seen it appreciate by 10% against the dollar in just over three weeks, is partly due to the Bank of Japan’s recent interest rate hike and an unwinding of yen-funded carry trades.
As fears of a US recession grow, expectations are mounting that the Federal Reserve might be forced to cut interest rates more aggressively in the coming months. Such a move could have further implications for global currency markets and the Indian rupee, which is likely to remain under pressure as investors navigate these uncertain times.
