Rupee slips to 85.80 against US Dollar, poised for worst monthly decline in two years

This marks the ninth consecutive day of decline for the Rupee, which has weakened by 3 percent against the dollar so far this year, setting it up for its seventh consecutive annual loss.

The current pace suggests the Rupee could experience its worst monthly performance in two years.

The fall in the Rupee has caused it to drop below the key psychological level of 85.50 for the first time.

Market activity, including the expiry of December currency futures and increased dollar buying by importers, is also contributing to the pressure.

Analysts from Nuvama Institutional predict the Rupee could hit 86 by the end of March, while Kotak Securities suggests it could break this level sooner.

The Reserve Bank of India (RBI) has not indicated any changes in its intervention strategy under new governor Sanjay Malhotra.

Meanwhile, the MSCI Emerging Market Currency Index has dropped over 3 percent since September, on track for its largest quarterly decline in two years.

Despite the Rupee's depreciation, it has shown a relatively moderate decline compared to other emerging market currencies.

Between April and November 2024, the Rupee declined by only 1.2 percent, performing better than currencies like the South Korean Won (-2.2 percent) and the Brazilian Real (-12.7 percent).

The Rupee's slide has been partly triggered by a record-high trade deficit of $37.8 billion in November, driven by reduced export growth amid weakening global demand and high import levels.

The Finance Ministry’s recent economic review highlighted global growth risks and uncertainties around international trade in 2025, exacerbated by concerns over higher US tariffs under President-elect Donald Trump.

Geopolitical tensions have fueled risk aversion, leading to a flight to safety in the US Dollar, further pressuring emerging market currencies.

India’s foreign exchange reserves, however, have risen by $6.4 billion during FY25, reaching $652.9 billion by December 13, enough to cover over 11 months of imports and nearly 96 percent of external debt.

The Rupee's decline is seen as beneficial for India’s pharmaceutical sector, which relies heavily on exports, making the weaker currency favourable for revenue.