Indian Rupee Hits Record Low Against the Dollar

On Monday, the Indian rupee reached a historic low, depreciating to 85.84 against the dollar, surpassing its previous record of 85.81 set in late December. The day concluded with the rupee at 85.83, marking a six paise drop from Friday's closing of 85.77. Factors such as a robust dollar, subdued capital flows, and a pessimistic outlook in the equity markets have continued to exert pressure on the currency.

RBI's Efforts and Market Reactions

Despite the Reserve Bank of India's (RBI) interventions through dollar sales, the rupee has remained under strain. Market participants suggest that the RBI is maintaining a cautious stance, awaiting clarity on the new US administration's tariff policies. The dollar index, which benchmarks the dollar against a basket of six currencies, experienced a 0.3% decline to 108.5, stepping back from a two-year peak.

Global Economic Indicators and Their Impact

Post-market hours, the dollar index saw a retreat following reports indicating that the US would impose tariffs solely on essential imports. Nonetheless, the dollar regained its footing after Federal Reserve Governor Lisa Cook signaled a prudent approach towards rate reductions, citing inflation worries. This development provided further buoyancy to the dollar.

Equity Markets and Foreign Investments

Indian equity markets also witnessed significant downturns. The Sensex plummeted by 1,258 points or 1.6% to 77,965, whereas the Nifty declined by 389 points or 1.6% to 23,616. Data reveals that foreign investors divested $1.1 billion in Indian equities and bonds in January alone, with a substantial sell-off of Rs 4,227 crore recorded on Friday, reflecting the prevailing weak market sentiment.

Emerging Market Pressures and Currency Performances

The rupee's depreciation was further aggravated by rising US bond yields and the dollar's safe-haven appeal, alongside concerns over an HMPV virus outbreak. Brent crude prices edged down by 0.3% to $76.3 per barrel, adding to the pressures on emerging markets. ING Bank forecasts that the dollar index could soon reach 110. In the global currency markets, the Japanese yen led the declines among the group-of-10 currencies against the dollar, with the Australian and New Zealand dollars emerging as the top performers. Meanwhile, China sustained its support for the yuan by maintaining the daily reference rate, following the currency's drop below a crucial threshold on Friday.