Indian Rupee Weakens to Record Low Against US Dollar, Poised for Worst Fiscal Year in Over a Decade

Indian Rupee Plunges to Record Low

The Indian Rupee has reached a record low, trading at 94.8125 per dollar after a 0.9% decline on Friday. This marks the currency's worst performance in over a decade, with a 4% drop since the Iran war began in February and an 11% decline this fiscal year.

Key Statistics:

• Record low: 94.84 per dollar
• Fiscal year drop: 11%
• 2023-2024 fiscal year drop: 11% (as of February end)
• Comparable drop: 14% in 2011-2012 due to global risk-off and current account weakness

Read also: FirstClub Secures $55 Million in Funding from Peak XV, Sofina, and Other Investors 9 Months After $22 Million Series A Round

The Middle East conflict has sent oil prices soaring to near $110 per barrel, with Societe Generale recommending shorting the rupee with a target of 96 per dollar. The firm notes that RBI interventions appear less aggressive, and market chatter is turning towards the need for FX reserves to be drawn down sparingly.

Market Reaction:

• Nifty 50 fell 2% on Friday
• Yield on the 10-year benchmark bond rose 7 basis points to 6.94%
• State-run banks offered dollars on Friday, but their presence was mild

Analyst Views:

Read also: RBI Policy Preview: A Cautionary Wait Ahead

• Analysts have shaved growth forecasts for India and pencilled in weaker forecasts for the rupee
• Some expect rate hikes by the Reserve Bank of India over the next 12 months
• Sanjay Mathur, chief economist for Southeast Asia and India at ANZ, notes that neither the government nor households have much financial cushion, necessitating a higher fiscal deficit or reduction in capital spending.