The Indian rupee plummeted to a record low against the US dollar on Monday, mirroring a sharp decline in global stock markets. Heightened fears of a potential US recession are driving investor anxiety.
As of 12:18 PM, the rupee was trading at 83.85, surpassing its previous all-time low of 83.75 set on Friday. The day began with the rupee at 83.78.
Analysts attribute the rupee’s decline to a combination of factors, including a weakening global market, growing concerns about a US recession, and ongoing geopolitical tensions.
“Worries about a US recession have triggered concerns over potential capital outflows from India and other emerging markets,” explained Ajay Kedia of Kedia Advisory in Mumbai. He added that the sell-off in US and Asian equities, exacerbated by a disappointing US jobs report, has intensified market volatility.
Friday’s employment data revealed a meager job growth of 114,000 in July, significantly below the anticipated 175,000. Moreover, the unemployment rate unexpectedly climbed to 4.3%, and wage growth decelerated more than forecast.
Kedia predicts the rupee could weaken further to 83.90, with support levels at 83.45 and resistance at 83.95. Breaking the 83.95 mark could propel the rupee towards 84.10 or 84.20.
Veteran financial market expert Jamal Mecklai echoed these concerns, stating, “Fears of a US recession and the ensuing equity market collapse are creating a risk-averse environment. The potential for a prolonged and severe equity downturn will inevitably put pressure on the rupee.”
The Indian rupee faced significant challenges throughout 2022-23 due to factors such as aggressive monetary tightening by central banks to combat inflation, the Ukraine war’s impact on oil prices, and a strengthening US dollar. While the rupee stabilized in subsequent months, the recent decline has brought it back into focus.
In 2022, the rupee depreciated by over 11%, culminating in an all-time low in mid-October. The Reserve Bank of India (RBI) intervened in the forex market to stabilize the currency, primarily through dollar sales to manage liquidity and prevent excessive volatility. The RBI emphasizes that its interventions aim to maintain orderly market conditions rather than targeting specific exchange rate levels.
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