The Indian rupee depreciated by 22 paise on Friday as global dollar strength, weak domestic indicators, and sustained foreign fund outflows weighed on sentiment.
Mumbai (Economy India): The Indian rupee weakened sharply on Friday, slipping past the psychologically crucial 90-per-dollar mark once again and closing at 90.20 against the US dollar, down 22 paise from its previous close. Persistent pressure from weak domestic macroeconomic indicators, sustained foreign capital outflows, and broad-based strength in the US dollar in overseas markets contributed to the currency’s decline.
Currency traders said the rupee remained under stress throughout the session, with limited support from the Reserve Bank of India (RBI) intervention and continued concerns over global monetary tightening and geopolitical uncertainties.
Dollar Strength Dominates Global Currency Markets
The US dollar continued its upward march against major global currencies, supported by expectations that the US Federal Reserve may keep interest rates higher for longer amid resilient economic data. The Dollar Index, which measures the greenback against a basket of six major currencies, traded near recent highs during Asian market hours.
A stronger dollar typically exerts pressure on emerging market currencies like the rupee, as global investors shift funds toward dollar-denominated assets offering relatively higher returns and perceived safety.
“The global dollar rally has been relentless, and emerging market currencies are bearing the brunt,” said a senior forex dealer at a private sector bank. “The rupee has little room to recover unless global cues turn supportive.”
Weak Domestic Macroeconomic Indicators Add Pressure
Apart from external factors, disappointing domestic macroeconomic data also weighed on the rupee. Market participants pointed to concerns over slowing consumption demand, uneven industrial recovery, and pressure on India’s current account balance due to elevated import costs.
Higher crude oil prices, even though off recent peaks, remain a concern for India, which imports more than 80% of its oil requirements. Rising energy costs tend to widen the trade deficit, increasing demand for dollars and weakening the domestic currency.
“India’s macro fundamentals remain relatively stable, but short-term indicators are showing stress,” noted an economist with a Mumbai-based research firm. “This has made the rupee more vulnerable to global shocks.”
Foreign Fund Outflows Continue
Foreign institutional investors (FIIs) remained net sellers in Indian equity and debt markets, adding further pressure on the rupee. Persistent capital outflows increase dollar demand in the domestic market, accelerating currency depreciation.
Market data showed that foreign investors have turned cautious amid global risk aversion, concerns over slowing global growth, and uncertainty around the timing of rate cuts by major central banks.
Traders said that unless capital inflows resume meaningfully, the rupee could remain under pressure in the near term.
RBI Intervention Offers Limited Support
The Reserve Bank of India is believed to have intervened intermittently in the foreign exchange market to smooth volatility. However, traders noted that the central bank appears comfortable with allowing gradual depreciation as long as movements remain orderly.
“The RBI is preventing excessive volatility, not defending a particular level,” said a forex strategist. “The 90 mark is psychologically important, but not sacrosanct.”
India’s foreign exchange reserves, though still robust, have seen some moderation in recent months, prompting the central bank to balance intervention with reserve conservation.
Intraday Movement: Volatile Trading Session
During Friday’s trading session:
- The rupee opened weaker, reflecting overnight dollar strength.
- Selling pressure intensified in the afternoon as importers rushed to hedge dollar exposure.
- The currency touched intraday lows near 90.25 per dollar before settling at 90.20.
Dealers said importer demand and speculative dollar buying dominated the market, while exporter selling remained limited.
Impact on Markets and Economy
A weaker rupee has mixed implications for the Indian economy:
Positive Effects
- Boosts export competitiveness by making Indian goods cheaper in global markets.
- Supports IT and export-oriented sectors with dollar revenues.
Negative Effects
- Raises import costs, especially for crude oil, fertilizers, and electronics.
- Adds to inflationary pressures if depreciation persists.
- Increases the burden of external debt repayment.
Stock market participants remained cautious, as currency weakness often signals broader risk aversion.
What Lies Ahead for the Rupee
Analysts expect the rupee to remain volatile in the near term, tracking global cues such as:
- US inflation and employment data
- Federal Reserve policy signals
- Crude oil price movements
- Foreign portfolio investment trends
Some market participants believe that the rupee could test 90.50 per dollar if global conditions worsen, while others expect RBI intervention to limit sharp downside.
“Near-term risks are tilted toward depreciation, but sharp falls are unlikely,” said a currency strategist at a global bank. “Much will depend on global risk sentiment and domestic policy signals ahead of the Union Budget.”
Budget and Policy Watch
With the Union Budget 2026–27 scheduled to be presented on February 1, markets will closely watch fiscal signals, government borrowing plans, and growth projections. Clear policy direction and credible fiscal consolidation could help stabilize investor confidence and support the rupee.
Economists also expect the RBI’s upcoming monetary policy review to provide cues on liquidity management and currency outlook.
The rupee’s slide past the 90-per-dollar mark underscores the challenges posed by a strong US dollar, weak domestic macro cues, and persistent foreign fund outflows. While India’s economic fundamentals remain stronger than many peer economies, short-term pressures continue to test currency stability.
As global uncertainties persist, the rupee is likely to remain sensitive to external shocks, with the RBI playing a crucial role in ensuring orderly market conditions rather than defending specific exchange rate levels.
(Economy India)
