Rupee Hits All-Time Low of 84.87 Against US Dollar Amid Market Expectations of Rate Cut
The Indian rupee dropped 2 paise to reach an all-time low of 84.87 against the US dollar in early trade on Wednesday, driven by growing expectations of a shift in the Reserve Bank of India’s (RBI) monetary policy stance. This shift follows the recent appointment of Sanjay Malhotra as the new RBI Governor.
Forex traders noted that markets are now speculating a rate cut in the upcoming monetary policy review in February 2025. The expectation of a dovish stance under the new RBI Governor, coupled with a strong US dollar index, added further pressure on the rupee.
At the interbank foreign exchange market, the rupee opened at 84.87, marking a 2-paise decline from its previous close. On Tuesday, the rupee had settled at 84.85, registering a modest gain of 1 paisa.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, attributed the decline to the market’s expectation that Malhotra, coming from the Finance Ministry, may adopt a dovish policy stance. He further speculated that the RBI could lower rates as early as February 2025 to address the ongoing challenges faced by the Indian economy.
Malhotra, who assumed office as the 26th Governor of the RBI on Monday, steps in during a critical time for the Indian economy, which is grappling with slowing growth and high inflation. His predecessor, Shaktikanta Das, kept interest rates steady for nearly two years to curb inflation. However, Malhotra is expected to take a collaborative approach, recognizing that managing inflation is not solely the responsibility of the RBI but requires government intervention as well.
The RBI had previously defended the rupee at 84.86, but it opened lower on Wednesday and is expected to fluctuate between the range of 84.77 and 84.97 throughout the day, according to Bhansali.
The dollar index, which measures the greenback’s strength against a basket of six major currencies, was trading lower by 0.07% at 106.32.
In other market updates, Brent crude rose by 0.57% to USD 72.61 per barrel in futures trade. Meanwhile, on the domestic equity front, the Sensex dropped by 39.22 points, or 0.05%, to 81,470.83 points, while the Nifty fell 5.15 points, or 0.02%, to 24,604.90 points.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Tuesday, purchasing shares worth Rs 1,285.96 crore, according to exchange data.
