Post by : Saif Rahman

On Monday, the Indian rupee hit a historic low, trading at 89.59 against the U.S. dollar, breaking the previous low of 89.49 marked just weeks earlier. This decline occurs alongside India's exceptional GDP growth of 8.2% in the September quarter, surpassing expectations of 7.3%, illustrating the irony of solid economic progress coupled with a faltering currency.

Experts indicate that the rupee's depreciation is primarily influenced by sluggish trade and portfolio flows, compounded by delays in finalizing a U.S.-India trade agreement. Ongoing high tariffs, reaching up to 50% on Indian exports, are stunting export growth and curbing foreign investment inflows. Without any trade agreement advancements, the rupee increasingly depends on central bank measures for support.

Moreover, additional pressures on the currency include importers hedging against its decline, a less favorable balance of payments, and pressing positions maturing in the non-deliverable forwards market. There are reports that state-run banks intermittently offered dollars to stabilize the currency.

Analysts at J.P. Morgan have noted that a "calibrated" depreciation of the rupee is both inevitable and necessary given the current macroeconomic environment. They suggest that as long as the trade negotiations remain stalled, the rupee will need to adjust further to mitigate trade imbalances and bolster economic support.

Despite this decline, the strong economic performance of India continues to capture global attention. The 8.2% GDP growth shows resilient domestic demand and recovery in pivotal sectors, yet the currency's frailty highlights the difficulties in balancing external trade demands with internal economic improvements.

Investors and policymakers are closely monitoring the U.S.-India trade situation, as any positive developments could assist in stabilizing the rupee and enhancing confidence in India's financial landscape. Until such progress is made, the currency is likely to remain under pressure, regardless of the nation's impressive economic indicators.

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