Re Hits New Low Against Dollar Amid Ongoing Market Turbulence
The Indian rupee experienced a significant decline on Wednesday, closing at 91.70 against the US dollar, a drop of 72 paise from the previous day’s close of 90.98. This marks the currency’s sixth consecutive day of losses and its steepest single-day fall in nearly two months, reaching an all-time intraday low of 91.74. Factors contributing to this downturn include global bond market weakness, geopolitical tensions, and ongoing capital outflows, which have collectively dampened market sentiment.
Factors Behind the Rupee’s Decline
The rupee’s depreciation can be attributed to several interconnected factors. A global bond selloff, primarily driven by tensions between the United States and the European Union, has weakened risk appetite among investors. This situation has raised concerns about capital outflows, further exacerbating the rupee’s decline. Additionally, the lack of dollar supply support in the market has intensified downward pressure on the currency. According to economist Madan Sabnavis from Bank of Baroda, the rupee has depreciated approximately 7% over the past year, significantly exceeding the 10-year average decline of 3.1%.
The Reserve Bank of India’s (RBI) intervention in the forex market has been sporadic and has not focused on defending any specific exchange rate level. Instead, the RBI has relied on buy-sell swaps to manage liquidity, as direct dollar sales have a more immediate impact on market liquidity. This unusual approach reflects the current challenges faced by the RBI in stabilizing the rupee amidst external pressures.
Geopolitical Tensions and Market Reactions
Geopolitical issues have further complicated the rupee’s outlook. With no signs of a rollback in US tariffs on Indian exports, and discussions of an additional 25% levy related to trade with Iran, the rupee is expected to remain under pressure. Forex consultant K N Dey noted that foreign investors have continued to sell Indian equities, resulting in net outflows of approximately $3.5 billion in January alone. This trend of selling has contributed to the rupee’s vulnerability, making it unlikely for the currency to strengthen significantly without intervention from the RBI.
Market participants have also observed that persistent equity outflows and heightened hedging demand from importers, driven by expectations of further depreciation, continue to weigh heavily on the currency. Despite a manageable current account deficit, weak capital inflows have left the rupee exposed to external shocks, creating a challenging environment for the currency.
Impact on Indian Equities and Future Outlook
The decline of the rupee has had a noticeable impact on Indian equities, which fell by 0.3% on the same day, extending losses after experiencing their steepest drop in over eight months during the previous session. Foreign investors have withdrawn around $3 billion from Indian equities in January, following record outflows of nearly $19 billion in 2025. This trend underscores the growing caution among investors regarding the Indian market.
While the depreciation of the rupee may offer some advantages for exports, particularly in light of existing tariffs in the United States, it also introduces uncertainty for corporations. Sabnavis highlighted that while the weaker rupee could enhance export competitiveness, it also raises concerns for businesses, potentially leading to increased caution in investment and operational decisions. As the situation evolves, the interplay between geopolitical factors, market sentiment, and RBI interventions will be crucial in determining the future trajectory of the rupee.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
