On Monday, the Indian rupee depreciated against the US dollar, reaching an all-time low amid global heavy selling in stock markets due to concerns about a potential US recession. As of 12:18 pm, the rupee was trading at 83.85, down from Friday’s close of 83.75. It opened at 83.78, surpassing the previous record low of 83.7525 set on Friday.
Analysts attribute the rupee’s decline to global market weakness, US recession fears, and geopolitical tensions. Ajay Kedia of Kedia Advisory in Mumbai noted that concerns over a potential US recession have raised fears of foreign outflows from India and other emerging markets. The selloff in US and Asian equities, following a disappointing US jobs report, has exacerbated these concerns and heightened market jitters.
The weak US jobs report released on Friday revealed that the economy added only 114,000 jobs in July, well below the expected 175,000. Additionally, the unemployment rate unexpectedly rose to 4.3%, and wage growth slowed more than anticipated.
Kedia suggested that the Reserve Bank of India (RBI) might allow the USD/INR rate to rise to 83.90, with support at 83.45 and resistance at 83.95. Breaking 83.95 could push the rate to 84.10 or 84.20. Financial market veteran Jamal Mecklai added that US recession fears and a collapse in equity markets could create a risk-off sentiment, putting additional pressure on the rupee.
In the 2022-23 period, the Indian rupee was frequently in the news for negative reasons. Monetary policy tightening by central banks to combat inflation, the war in Ukraine leading to crude oil price hikes, and the strengthening of the US dollar index kept the Indian currency under pressure. The rupee depreciated over 11% in 2022, breaching the 83-mark against the US dollar in mid-October to hit an all-time low.
The RBI’s possible intervention in the forex market, aimed at stabilizing the rupee, appeared to have been effective. Typically, the RBI intervenes in the markets through liquidity management, including selling dollars to prevent a steep depreciation of the rupee. The RBI closely monitors the foreign exchange markets and intervenes to maintain orderly market conditions by containing excessive volatility in the exchange rate, without targeting any specific level or band.