Rupee Falls To Record Low Of 86.62 Against US Dollar: 3 Key Factors Behind The Crash

The Indian rupee sank to a record low of 86.62 against the US dollar on Monday, registering its steepest single-day fall in almost two years. The currency dropped 58 paise, or 0.67 percent, weighed down by surging crude oil prices, stronger US job data, and consistent foreign institutional investor (FII) outflows.

At the interbank foreign exchange market, the rupee opened at 86.12 and briefly touched 86.11 during intraday trading before closing at its lowest-ever level of 86.62. The sharp decline of 58 paise in a single session was the largest drop since February 6, 2023, when the currency fell by 68 paise.

This decline comes after the rupee had already weakened by 18 paise on Friday to settle at 86.04 against the dollar.

Factors Contributing to the Rupee’s Decline

1. Crude Oil Price Surge:
   A sharp rise in crude oil prices exerted significant pressure on the rupee. Brent crude, the global oil benchmark, surged by 1.44 percent to $80.91 per barrel, driving concerns about India’s import bill and widening trade deficits.
2. Strong US Job Data:
   Better-than-expected job growth in the US economy strengthened the dollar. Employers added 256,000 jobs in December, far exceeding economists’ estimates of 160,000. This robust performance fueled benchmark treasury yields and expectations of slower interest rate cuts by the Federal Reserve, further boosting the greenback.
3. Foreign Institutional Investor Outflows:
   FIIs continued to withdraw from Indian capital markets, further impacting the rupee. On Friday, FIIs offloaded Rs 2,254.68 crore on a net basis. Additionally, India’s forex reserves saw a sharp decline of $5.693 billion, standing at $634.585 billion as of January 3.

Broader Impact

The dollar index, which measures the greenback’s strength against a basket of six major currencies, rose 0.22 percent to a two-year high of 109.72. Meanwhile, US 10-year bond yields touched their highest levels since October 2023 at 4.76 percent.

Domestic equity markets also felt the heat, with the BSE Sensex and Nifty 50 indices experiencing sharp losses. The combination of volatile global factors and weakening investor sentiment added to the rupee’s woes.

Looking Ahead

The rupee’s decline underscores the vulnerabilities of emerging market currencies amid global economic uncertainties. With crude oil prices and US economic performance continuing to dominate global market sentiment, further pressure on the rupee cannot be ruled out.

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