The Indian rupee is currently trading at the 84 per USD mark, nearing its record low of 83.05 reached on October 4th. This decline is largely driven by an increase in foreign currency outflows from Indian markets, as investors adjust their strategies in response to aggressive fiscal and monetary stimulus announced by China.
As domestic and foreign investors pivot their capital toward Chinese markets, they are divesting from rupee-denominated assets, contributing to significant rises in Shanghai and Hong Kong equity indices. This trend is compounded by rising prices of oil and coal, which surged in early October due to escalating geopolitical tensions in the Middle East that have heightened energy contract risk premiums, thus making crucial Indian imports more costly.
Despite these challenges, the Reserve Bank of India (RBI) is set to maintain its terminal rate at 6.5% during its upcoming meeting, signaling a cautious approach towards potential rate cuts in light of persistent upside inflation risks, even amid a recent slowdown in domestic price growth.
On October 7, the USDINR saw a minor decrease of 0.0362 or 0.04%, settling at 83.9960 from the previous session's 84.0322. Analysts project the rupee will trade at 84.08 by the end of the current quarter, with further expectations to rise to 84.87 within the next 12 months.