Rupee Falls to Record Low, Approaches 85 Mark

Why in the news?

The rupee hit an all-time low of ₹84.852 against the dollar amid expectations of rate cuts under new RBI Governor Sanjay Malhotra, raising concerns about further depreciation.

Rupee Falls to Record Low, Approaches 85 Mark

Impact of RBI Leadership Change on Markets:

  • The bond and forex markets reacted differently to the appointment of Sanjay Malhotra as the new RBI Governor.
  • Bond yields eased due to the possibility of a rate cut in February, with the 10-year benchmark yield closing 1 basis point lower at 6.71%.
  • The rupee hit a record low, falling 12 paise to close at ₹84.852 against the US dollar. Intraday, it briefly touched ₹84.866.

Prospects of Rate Cuts and Economic Growth

  • Malhotra’s first statement emphasized understanding multiple perspectives and prioritizing the economy’s needs.
  • According to a Nomura report, Malhotra’s tenure may focus on growth-oriented monetary policies, potentially reducing the policy rate by 25 basis points in February, with further cuts totaling 100 basis points by 2025.
  • Analysts anticipate a decline in the 10-year benchmark yield to 6.60% by March 2025, signaling potential credit growth.

Forex Concerns and Rupee Outlook

  • Forex traders remain cautious as a rate cut could exert additional pressure on the already weak rupee.
  • Market expectations are influenced by global factors, including a stronger dollar and anticipated policy directions under Malhotra’s leadership.
  • Anil Kumar Bhansali of Finrex Treasury Advisors predicts the rupee could depreciate further, reaching ₹85 by December-end and ₹85.50 by March 2025, as the REER remains above 107.21.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times