Indian Rupee Hits Historic Low: Falls to 84.93 Against US Dollar Amid Record Trade Deficit
The Indian Rupee experienced a historic drop on December 17, 2024, declining to 84.93 per USD, down from the previous session’s close of 84.87. The six-paise dip marks an all-time low, sparking concerns that the currency may breach the 85 mark against the dollar soon.
Why Is the Rupee Falling?
On December 16, 2024, the Ministry of Commerce released trade data revealing India’s trade deficit reached an all-time high of $37.84 billion in November.
- Imports Surge: Increased demand for gold, edible oils, fertilizers, and silver, fueled by wedding and festive seasons, drove up imports. Gold imports alone reached a record $14.8 billion.
- Exports Decline: A dip in exports further widened the trade gap, putting additional pressure on the rupee.
Dollar Strength and Trump’s Impact
The rupee’s decline is exacerbated by the strengthening of the US Dollar Index, following Donald Trump’s victory in the US elections. Trump, set to take the oath as US President on January 20, 2025, is expected to introduce higher tariffs on imports, strengthening the dollar further.
- A stronger dollar and reduced chances of lower interest rates in the US could lead to further depreciation of the rupee.
Foreign Exchange Reserves Decline
To stabilize the rupee, the Reserve Bank of India (RBI) has been actively selling dollars. However, this intervention has significantly depleted India’s foreign exchange reserves, with a reported $50 billion reduction since the end of September 2024.
- The decline is attributed to sustained outflows by foreign investors in Indian equities and RBI’s dollar sales.
What Lies Ahead for the Rupee?
Market experts predict that the rupee’s trajectory depends on:
- Global Economic Policies: Any changes in the US administration’s trade policies.
- Trade Balances: Efforts to curb the widening trade deficit.
- Foreign Investment Flows: Recovery in foreign investments in Indian markets.
Conclusion
India’s record trade deficit, a surge in imports, and external geopolitical factors have collectively led to this historic depreciation of the rupee. With the possibility of further dollar strengthening under Trump’s presidency, the rupee may face more challenges ahead.
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