New Delhi: The Indian rupee fell to a record low of 95.63 against the US dollar in early trade on Tuesday, May 12, sliding 35 paise from its previous close.
The drop came after US President Donald Trump declared the Iran ceasefire was “on life support”, sending crude oil prices surging and rattling currency markets across Asia.
The 10-week-old conflict has kept global oil supply tight and Trump’s rejection of Tehran’s latest peace proposal as “totally unacceptable” has dimmed hopes of a quick resolution. Trump told reporters at the Oval Office, “It’s unbelievably weak, I would say. I would call it the weakest right now. After reading that piece of garbage they sent us, I didn’t even finish reading it. They said, I’m not gonna waste my time reading it, I would see it’s one of the weakest, right now, it’s on life support” On Monday alone, the rupee tanked 79 paise to settle at 95.28, itself a record at the time. Foreign investors have pulled out more than $20 billion from Indian equities since the war began, with overseas investors selling nearly $900 million in a single day on Monday.
Higher crude prices are widening India’s current account deficit. With the rupee weakening, imports are becoming more expensive across the board, from oil and electronics to gold. Economists have already begun cutting India’s growth forecasts, raising inflation estimates and lowering rupee projections.
The Reserve Bank of India has repeatedly intervened in currency markets, selling billions of dollars from its reserves to slow the rupee’s decline. India’s forex reserves stand at nearly $700 billion, enough to cover roughly 11 months of imports. However, RBI Governor Sanjay Malhotra has been clear that the central bank does not defend any fixed exchange rate level, saying, “We allow the markets to determine the prices.”
A weaker rupee makes foreign travel and overseas education costlier. It pushes up bond yields, raises interest rates and can dampen real estate demand. Those invested in foreign mutual funds may benefit as returns gain from currency movement. On the upside, gold investors could also see some gains as prices adjust during this period of volatility.
