Rupee hits record low of 87.94 against US dollar, further decline expected: Reports

The rupee on Monday slipped the most in six weeks after 44 paise to a record low of 87. 94 against the US dollar with early trading. This means another blow for the Indian currency that has already become Asia’s weakest performer in 2024 and hit several record lows based on a Bloomberg report that cited a Nomura brokerage.

Reasons for the Rupee’s Decline

The rupee’s downward trajectory is expected to continue, as the Reserve Bank of India (RBI) is likely to persist with its strategy of increasing foreign exchange reserves, according to the Bloomberg report. “With the RBI maintaining its FX stance, we see a risk of rupee underperformance, as the central bank may continue to favor building a substantial FX reserves buffer,” Nomura noted.

The RBI’s choice to reduce the benchmark repo rate by 25 basis points to 6. 25% from 6. 5% last week, coupled with the sustained strength of the US dollar, has exerted extra pressure on the rupee. This rate reduction, which was the first in almost five years, occurred as India’s GDP growth decelerated to 5. 4% in Q2 of FY 2024-25, the slowest in seven quarters. The statement even added that further inflation contracted to a four-month low of 5. 22% in December 2024.

According to a Bank of Baroda report available with ANI news agency, the RBI could cut rates by another 50 basis points in 2025 and flip its stance from “neutral” to “accommodative” while the timing is less certain. “As RBI kicks off the rate cut cycle, one can very well expect that the cuts would continue, but the timing would be debatable. Altogether, we are assuming a 75bps reduction in this calendar year,” the report said.

Along with the 25bps rate cut last week, the RBI also lowered the Standing Deposit Facility (SDF) rate to 6% and the Marginal Standing Facility (MSF) rate to 6. 5%, upholding a “neutral” policy stance.