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India’s rupee tumbled below a key psychological level of 86 per dollar, lagging behind regional peers, and drove local stocks to their lowest level since June.
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Bloomberg News
Subhadip Sircar
Published Jan 13, 2025 • 2 minute read
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India’s rupee tumbled below a key psychological level of 86 per dollar, lagging behind regional peers, and drove local stocks to their lowest level since June.
The currency fell as much as 0.7%, the most since early 2023, to a fresh record of 86.5963 on Monday. The benchmark NSE Nifty 50 index slid as much 1.2%, and the 10-year bond yield climbed by seven basis points to 6.85%.
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The drop was driven by a rally in the dollar as strong US jobs data reduced bets on further Federal Reserve interest-rate cuts, while a surge in oil prices weighed on sentiment in India, a net oil importer.
The rupee has plumbed record lows in recent weeks, adding to pressure to stocks and bonds that were already battered by a slowdown in company earnings growth and capital outflows. Global funds have pulled about $2 billion from local shares so far this year, and sold a net $705.5 million of fixed-income securities on Jan. 8.
Additionally, a combination of a weak currency and higher energy prices may complicate the Reserve Bank of India’s efforts to start cutting borrowing costs in its review next month, according to some economists.
“The falling rupee could be one of the crucial factors to stop them from a cut” in interest rates, said Gaura Sengupta, chief economist of IDFC First Bank Ltd. “The call on policy rates in February will be a close one.”
Standard Chartered Plc last week pushed back its rat-cut call of 50 basis points to April-June from February-April earlier amid tight rupee liquidity.
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To be sure, the rupee remains one of the most stable currencies in Asia even after the slide due to the central bank’s repeated interventions in the market to curb currency volatility.
The currency may fall past 90 per dollar this year, as the RBI prepares to ditch the currency’s implicit quasi-peg to the dollar, Gavekal Research said last week.
“Maybe the central bank has decided to let it weaken more as headwinds are pretty big now,” said Allan von Mehren, chief analyst at Danske Bank AS. “But I would expect they will aim to reign it in and slow the pace of depreciation.”
—With assistance from Malavika Kaur Makol and Anup Roy.
(Updates with stocks, bond performance in second paragraph)
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