The Indian rupee plummeted to a record low against the US dollar as rising crude oil prices, continuous FII selling, and a weak domestic equity market created a perfect storm for currency depreciation.
Key Points
- The Indian rupee hit a record low of 92.37 against the US dollar due to high crude oil prices and geopolitical tensions.
- Heavy selling by Foreign Institutional Investors (FIIs) further contributed to the rupee's decline.
- Domestic equity markets, with the Sensex and Nifty indices falling, added to the negative sentiment surrounding the rupee.
- Rising retail inflation, driven by higher food prices, also impacted the rupee's performance.
- Elevated oil prices, influenced by geopolitical factors such as tensions in West Asia, continue to put pressure on the rupee.
The rupee slumped 12 paise to its record low of 92.37 against the US dollar in early trade on Friday as global crude oil prices showed no signs of easing amid the ongoing West Asian conflict.
A stronger greenback, heavy FII selling and weak sentiments in the domestic equity markets further weighed on the rupee, according to forex traders.
At the interbank foreign exchange, the local unit opened at 92.33 and slipped further to hit its record intra-day low of 92.37 against the US dollar, down 12 paise from its previous close.
The rupee touched a fresh intra-day low of 92.36 on Thursday and closed the session 24 paise down at its lowest level of 92.25 against the US dollar.
Factors Influencing the Rupee's Decline
"Oil prices remained elevated after Iran said the Strait of Hormuz is closed permanently till the resolution of the crisis. The dollar index also rose, European and Asian currencies all fell against the dollar," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said.
The rupee has remained vulnerable and in the absence of the RBI could have reached 93.00 levels, he added.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.04 per cent higher at 99.77.
Brent crude, the global oil benchmark, was trading higher by 4.99 per cent at USD 96.57 per barrel in futures trade.
Market Performance and Inflation
On the domestic equity market front, the Sensex plunged 560.06 points, or 0.74 per cent, to 75,474.36, while the Nifty tanked 184.45 points, or 0.78 per cent, to 23,454.70.
Foreign institutional investors sold equities worth Rs 7,049.87 crore on a net basis on Thursday, according to exchange data.
Meanwhile, retail inflation moved up to 3.21 per cent in February compared to 2.74 per cent in the preceding month, driven mainly by higher food prices, government data released on Thursday showed.
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