Tuesday 14 / January / 2025
Muscat: Indian rupee witnessed the steepest fall in the last two years on Monday to hit a record low of 86.59 against US dollar.
The money exchange houses offered 223.85 for one Omani rial.
Speaking to Times of Oman, R. Madhusoodanan, a financial expert based in Muscat, said, “The reasons attributed for the heavy fall are the strengthening of US dollar, sharp rise in crude oil prices, higher forex outflows, increase in the US Treasury yields etc.
The Dollar Index (DXY) has moved up to 109.50 levels. The strong US job data, indications of lower rate cuts by US Fed, concerns on the likely changes in the US trade policies made the US dollar stronger, pushing the Emerging Market (EM) currencies weaker, he said.
The fall of INR on Monday was disproportionate to the fall of other Asian currencies, he said, adding the Indian economy being import oriented, has adverse effects on rupee depreciation.
“India spends heavily on import of crude, electronic goods and gold. Weak INR widens the trade and Current Account Deficit (CAD).
“In the past, the RBI has been strongly intervening in the Forex Market to stop the rupee fall and reduce the forex market volatility.
“INR has been under pressure for the past few months due to domestic and global reasons. The sluggish Indian growth rates, huge outflows from stock markets are the domestic reasons while strengthening of dollar index, the prevailing geo political issues, Donald Trump’s threat of higher tariffs are other reasons for the continued depreciation of INR, he added.
The flip side of this is that the NRIs and Indian exporters are happy as they get more value for their earnings.
The INR downward trajectory has been ongoing for the past few months amid high volatility. The RBI had a very comfortable Forex Reserve of $704 billion in September 2024. The reserve as on 3/1/2025, was $634.58 billion and the decline was mainly due to the intervention of RBI in the Forex market to keep rupee fall under control.
Going forward, RBI may allow the weakness of INR in tune with the demand and supply conditions, making less interventions. No doubt, this shift of RBI may put pressure on INR in the short term horizon.
It is worth mentioning to note that in 2024, INR deprecated by 2.8% while Yen by 10.30%, Euro by 6.2%, AUD by 9.20%.
Therefore, it make sense to leave it to the market conditions rather than frequent interventions by the Central Bank to hold the INR at certain levels. Let the INR valuations be market driven.
The positive outlook on USD, the geo political tensions, the lukewarm response for the de-dollarisation move of BRICS plus blocs etc make the Emerging Market currencies under pressure in 2025.
Therefore, the rupee may see further downfall in the short term and it may even cross 88 levels, said the financial expert.
A higher GDP, review of last years cut in BCD on Gold and electronic goods, announcements in the forthcoming Union Budget are important indicators in this regard.
