India (Commonwealth) _ On Friday, March 22, the Indian Rupee (INR) closed at a record low compared to the US dollar (USD). Investors and foreign exchange dealers want an explanation about the current state of the Indian rupee.
Notably, in relation to the US dollar, the Indian Rupee has just recovered from one of its worst weeks ever. INR started on Monday, March 18, at $0.01206, according on data drawn by TradingView from The Intercontinental Exchange (ICE).
India’s native currency then began to plummet, reaching all-time lows with each successive daily closing. Ultimately, falling below historical resistance at a record-low daily exchange rate of $0.01196 per INR.
It’s interesting to note that on March 22, the Indian Rupee reached $0.1195 after trading at lower levels during the day. Prior to this, on September 20, 2023, the INR opened at $0.01197 and experienced an even lower price of $0.01194. Even yet, the day’s close was over $0.012, making this India’s worst daily closing ever.
Indian currency
A general decline in the value of India’s Asian peers, such as the Chinese Yuan (CNY) relative to the dollar, coincided with the present decline.Recently, as financial concerns have increased, young Chinese investors have shifted to gold bean accumulation as a means of gaining exposure to the metal.
However, a private bank’s unnamed foreign exchange trader told Reuters that the reason for the biggest decline was:” Nearing the end of the session, there were strong dollar bids in addition to the “surprising absence” of Reserve Bank of India (RBI) intervention.
Therefore, trade pressures and the absence of Indian central bank intervention were the primary causes of the Indian Rupee’s decline to historic lows vs the US dollar. Remarkably, the Deccan Herald stated in late 2023 that the International Monetary Fund (IMF) proposed that the RBI was unduly meddling to keep the INR exchange rate at higher levels.
Historical supply inflation of Indian Rupee
Specifically, the past supply inflation in India helps to explain some of the necessity for state meddling. The money supply in Indian Rupees (m2) has grown by about three times during the last 10 years, according per statistics from Macrovar. In light of this, the amount of INR in circulation has increased from 21 trillion in 2014 to over 61 trillion at this time.
The currency market may now be able to freely decide the pace for the Indian Rupee’s decline in value due to lessened intervention. Technically speaking, though, the INR has oversold levels in its daily Relative Strength Index (RSI), indicating that an upward correction may be in order before taking any more action.
However, imbalances that are now finally being priced in dollars might have been caused by years of Reserve Bank of India intervention. Given the nation’s previous financial mistakes and the significant money issuance over the previous ten years, the INR may be on the verge of a crash if this trend persists.
Global currency rate
The rupee fell 35 paise to end at an all-time low of 83.48 vs the US dollar on Friday, following the greenback’s surge against key crosses in international markets and weak Asian counterparts. Forex dealers said that outflows of foreign funds affected the local currency as well.
The local currency depreciated 35 paise from the previous closing of 83.13 to a record low of 83.48 (provisional) at the interbank foreign exchange market, where it began weakly versus the US dollar at 83.28. The rupee fell as low as 83.52 versus the US dollar during intraday trading. On December 13, 2023, the rupee hit its lowest closing value of 83.40. Anuj Choudhary, Research Analyst at BNP Paribas’ Sharekhan, the weaker euro and pound helped the US currency gain strength.
The euro fell as the likelihood of a rate cut by the European Central Bank (ECB) in June 2024 increased after the Swiss National Bank (SNB) shocked the markets by lowering interest rates by 25 basis points to 1.5%.
Following the Bank of England’s decision to maintain interest rates at 5.25 percent, the pound also declined. In the last meeting, two hawkish committee members voted in favor of an increase in rates; they also voted against one. Strong US economic statistics also supported the US dollar, according to Choudhary.
In the meantime, the dollar index, which measures the strength of the US dollar relative to a basket of six other currencies, was up 0.31 percent at 104.32 on Friday. The world oil benchmark, Brent crude futures, fell 0.05 percent to $85.74 a barrel.
Because of the strong US dollar and anticipations of a recovery in crude oil prices, we anticipate that the rupee will trade with a bearish bias. At lower levels, meanwhile, the rupee may find support from an optimistic tone in the domestic markets. According to Choudhary, any dollar sales by the RBI might help the rupee.
The 30-share BSE Sensex, which measures domestic equities market performance, ended the day at 72,831.94, up 190.75 points, or 0.26 percent. The NSE Nifty as a whole increased by 84.80 points, or 0.39 percent, to 22,096.75.
Exchange data indicates that on Thursday, Foreign Institutional Investors (FIIs) sold shares worth ₹1,826.97 crore, making those net sellers in the capital market.
