①The Indian rupee fell to a historic low against the US dollar, despite India recording its strongest economic growth in six quarters; ②The weakening of the rupee weighed on India's stock and bond markets, with the benchmark NSE Nifty 50 Index erasing its daily gains and the yield on five-year government bonds rising to its highest level since September.
Cailian Press, December 1 (Edited by Niu Zhanlin) Under the shadow of unresolved trade disputes with the United States, the Indian rupee fell to a historic low against the US dollar, even as India recorded its strongest growth in six quarters.
According to sources familiar with the matter, when the rupee fell to a record low of approximately 89.70 per US dollar, the Reserve Bank of India intervened sporadically and with restraint to support the currency. These operations helped the rupee narrow its losses on Monday, trading around 89.63, down 0.2% from the previous day after earlier falling to 89.78.
The weakening of the rupee also weighed on India’s stock and bond markets, with the benchmark NSE Nifty 50 Index erasing its daily gains and the yield on five-year government bonds rising to its highest level since September.
An analyst in Mumbai noted: “India's stock market is nearing historic highs, and the sharp fluctuations in the rupee have made some investors nervous.” He also pointed out that the lack of news regarding a trade agreement with the United States has been weighing on market sentiment.
Dilip Parmar, a foreign exchange analyst at HDFC Securities, stated that while the Reserve Bank of India may step in to stabilize the exchange rate, the pressure on the rupee remains unresolved. “The widening trade deficit and ongoing tariff uncertainty are major bearish factors, despite strong domestic growth performance in India.”
Official data released last Friday showed that India’s annualized GDP growth reached 8.2% in the third quarter, surpassing market expectations and marking the fastest growth in six quarters. However, the International Monetary Fund (IMF) lowered its growth forecast for India’s next fiscal year to 6.2%, assuming that “US tariffs will remain unchanged at high levels.”
ANZ noted that India is one of the few major economies that have yet to reach a trade agreement with the United States, and this delay may have reduced the urgency for the Reserve Bank of India to use foreign exchange reserves to defend the rupee.
Dhiraj Nim, a foreign exchange strategist at ANZ, stated: “This is because, against the backdrop of prolonged delays in reaching a trade agreement, the Reserve Bank of India appears more willing to tolerate a weaker rupee. The rumored deadline for the trade deal has passed, and the latest indications suggest negotiations remain lengthy.”
Market attention will now shift to the Reserve Bank of India’s policy review meeting on December 5, focusing on Governor Sanjay Malhotra’s comments regarding the central bank’s tolerance as the rupee approaches the 90 mark.
Malhotra recently stated in an interview that the weakening of the rupee primarily reflects the inflation gap between India and developed economies. He claimed that an annual depreciation of 3%–3.5% for the rupee is normal, with the central bank's focus remaining on curbing excessive volatility rather than rigidly defending a specific level.
The rupee has fallen 4.5% against the US dollar this year, making it the worst-performing currency in Asia. Traders have noted that without the central bank’s continuous market intervention, the rupee’s decline would have been even steeper.
Economists at JPMorgan stated in a report that under the current macroeconomic environment, the depreciation of the rupee is both inevitable and necessary. They pointed out that if a US-India trade agreement continues to be delayed, the rupee will need to compensate for the pressures from trade and capital inflows more significantly through depreciation.
Editor/Liam