The Indian Rupee has started the week on a weaker note, falling one paise against the US Dollar in early trade on Monday. Opening at 90.63 per dollar, the rupee quickly slipped to 90.67, continuing its struggle to gain momentum despite positive news from trade deals with the US and the European Union. This decline marks a slight setback for the rupee, which ended the previous week at 90.66 per dollar, showing limited movement within a narrow range.
Why is the Rupee Weakened?
Experts point to several factors contributing to the rupee’s weakness. One of the primary reasons is the continuous outflow of foreign capital, coupled with a stronger US Dollar. The Dollar Index, which measures the strength of the dollar against six major currencies, rose by 0.02%, reaching 96.93. This shift in the dollar’s position has put additional pressure on currencies of emerging economies like India.
Another significant factor is the slight rise in crude oil prices, which negatively impacts the rupee. India relies heavily on imports to meet its energy needs, and a rise in oil prices can increase the trade deficit and weaken the rupee. As of Monday, international benchmark Brent Crude was priced at $67.78 per barrel, contributing to the downward pressure on the rupee.
Anil Kumar Bhansali of Finrex Treasury Advisors LLP also noted that although the US Presidential holiday has lowered cash demand, the market is now awaiting the release of trade balance figures on February 16, which may provide further insight into economic conditions.
In addition to these global factors, the Indian stock market also showed signs of weakness. The Sensex dropped to around 82,555, and the Nifty slipped to 25,459, reflecting a broader market pullback. Furthermore, foreign institutional investors (FII) sold over ₹7,395 crore worth of shares on Friday, further adding to the downward pressure on the rupee.
Declining Foreign Exchange Reserves
A concerning aspect for the Indian economy is the fall in the country’s foreign exchange reserves. According to data from the Reserve Bank of India (RBI), India’s foreign exchange reserves decreased by $6.711 billion to reach $717.064 billion for the week ending February 6. This reduction in reserves is further affecting market sentiment and contributing to the rupee’s depreciation.
The combination of a strengthening US Dollar, foreign institutional sell-offs, rising crude oil prices, and falling foreign exchange reserves are all key factors putting the rupee under pressure. Despite positive global developments like trade deals, these macroeconomic factors continue to influence the currency market, leading to a sluggish performance of the Indian Rupee in early Monday trading.
