Sentinel Digital Desk
The Indian rupee hit a record low of 83.84 against the US dollar in August 2024. This decline was influenced by several factors including strong dollar demand, foreign fund outflows, and global economic conditions.
Since India's independence in 1947, the rupee's value has seen significant changes. Initially pegged to the British pound and then the US dollar, the rupee was devalued in 1966 and later in 1991 during economic reforms.
The recent record low was driven by aggressive dollar bids from foreign banks, increased demand for US dollars from oil companies, and weak risk appetite among investors.
The decline in rupee value impacts import costs, leading to higher inflation. It also affects foreign investments and the stock market, with benchmark indices like Sensex and Nifty experiencing significant drops.
The Reserve Bank of India (RBI) has been intervening in the foreign exchange market to stabilize the rupee, purchasing dollars to manage liquidity and prevent excessive depreciation.
Factors include global economic conditions, foreign fund outflows, domestic fiscal policies, and international trade balances. Recent hikes in capital gains taxes also contributed to the rupee's decline.
Currency valuation is influenced by factors like interest rates, inflation, and foreign exchange reserves. The supply-demand dynamics in the forex market also play a crucial role in determining the exchange rate.
While Asian currencies generally strengthened against the dollar, the rupee diverged due to unique economic pressures, including unwinding of carry trades involving the Chinese yuan.
Market analysts expect the rupee to remain volatile with potential for further depreciation. Upcoming economic indicators and policy decisions by the Federal Reserve will be crucial.
The rupee's record low against the dollar reflects broader economic challenges. Effective policy measures and global economic stability will be key to reversing this trend.