Wider trade deficit, tepid capital flows push rupee to all-time low
The Indian rupee hit a lifetime low for the seventh straight session on Thursday, adding to its losses in the current quarter on the back of a combination of a wider trade deficit and anaemic capital flows.
The rupee dropped to an all-time low of 85.2525 per U.S dollar, tracking a decline in most of its Asian peers.
It has lost 1.74% since the beginning of October and is headed for its worst quarterly performance since July-September 2022.
Keep updated, follow The Business Standard's Google news channel
India's changing balance of payments (BoP) picture as well as the run-up in the dollar and U.S. yields since Donald Trump's U.S. election victory have undermined the South Asian currency.
India's trade deficit has widened by 18.4% year-on-year from April to November, per IDFC First Bank's calculations. Meanwhile, outflows from equity and debt are tracking $10.3 billion this quarter, reversing from inflows of $20 billion in the previous quarter, per NSDL data.
That combination, according to economists, has resulted in a BoP deficit in the current quarter. The BoP is estimated to be $20 billion to $30 billion this fiscal year, compared to a surplus of over $60 billion in the previous fiscal.
The BoP outflows, coupled with a strong dollar, will keep the rupee under pressure, IDFC said, forecasting that the currency will weaken to 86 by September 2025.
DOLLAR IN DEMAND
The dollar's rally in the wake of Trump's election win is adding to the rupee's headwinds. The dollar index is hovering near year-to-date highs on expectations that the U.S. President-elect's policies will lift growth and inflation.
