Indian rupee was on a downward spiral in Samvat 2078, as it closed at 82.75 level on Friday from 74.46 level on November 3, 2021 (Diwali). Earlier this week, the domestic currency hit a record low of 83 level.
High trade deficit, outflows by foreign portfolio investors and strengthening of the dollar, are seen as factors contributing to the rupee weakness.
Mayank Goyal, Founder and CEO, moneyHOP said trade deficit is a key factor that has pushed the rupee down, as it indicates that the country is spending more on imports than it is earning from exports. "This imbalance puts downward pressure on the currency,” he said.
The country’s merchandise trade deficit widened to $25.71 billion in September against $22.47 billion in September 2021, according to the latest data released by the Ministry of Commerce and Industry.
The dollar has been strengthening against a number of major currencies, including the domestic rupee, as investors move to safe havens amid global economic uncertainty. This has made imports into India more expensive, contributing to the rupee’s decline.
Goyal said concerns about the health of the Indian economy have weighed on the currency.
“Growth has been sluggish in recent quarters, and there are worries that the country’s debt levels are unsustainable. This has made investors hesitant to put their money into India, leading to further selling pressure on the rupee,” he said.
On a year-to-date basis, foreign institutional investors have offloaded shares worth over Rs 1.76 lakh crore till October 20.
Anindya Banerjee, VP for currency derivatives at Kotak Securities said, “Higher US bond yields and weaker Asian currencies against dollar should keep the pair well-supported. We expect a range of 82.40 and 83.40 on spot for the Indian currency going ahead.”