The Indian Rupee (INR) has seen record lows against the US Dollar (USD) in recent years, sparking concern and analysis. A combination of global economic conditions, domestic issues, and currency market dynamics has driven this trend.

Dear Lykkers, here's a breakdown of why the Rupee is at an all-time low, illustrated by key numbers.

1. Global Inflation and Rising US Interest Rates

One of the main factors pushing the Rupee down is inflation and rising interest rates globally, especially in the United States. The US Federal Reserve's rate hikes have strengthened the USD significantly, making it more attractive to investors.

Key Figures:

In 2023, the USD appreciated by around 10-15% against a basket of global currencies.

The Federal Reserve increased interest rates to over 5% by mid-2024, a high point for recent years.

As higher rates promise better returns, foreign investors have shifted capital towards USD, leading to an outflow of foreign investment from emerging markets like India, which in turn weakens the Rupee.

2. India's Trade Deficit

India's trade deficit—the difference between imports and exports—has also placed pressure on the Rupee. A large trade deficit means that India is spending more on imports than it earns from exports, increasing demand for foreign currencies like the USD.

Key Figures:

As of 2024, India's trade deficit reached nearly $23 billion monthly.

The country's oil import bill alone contributes substantially to this, as India imports over 80% of its crude oil needs.

3. Decline in Foreign Direct Investment (FDI)

FDI is a crucial factor in stabilizing the Rupee, but recent years have seen fluctuations due to global economic slowdowns. While India has experienced FDI inflows, the rate of growth has slowed compared to previous years.

Key Figures:

In 2023, FDI inflows were around $85 billion, a modest growth from prior years but lower than expected.

Countries such as China and the US have attracted a larger share of FDI due to advanced manufacturing and tech sectors, pulling some investment away from India.

4. Strengthening of the Dollar Index (DXY)

The DXY index, which measures the USD against a basket of global currencies, hit record highs in recent years. As the USD gains strength, currencies of emerging markets, including the Rupee, tend to weaken.

Key Figures:

The DXY rose by about 15% from 2022 to 2024, directly impacting currencies worldwide, including the INR.

The Rupee, along with other emerging market currencies, depreciated significantly, partly due to this global trend.

The Rupee's depreciation reflects a confluence of international and domestic pressures, from rising interest rates to India's own economic challenges. While a weak Rupee makes imports costlier, it can also boost exports, making Indian goods cheaper abroad. However, inflationary pressures from high import costs remain a concern.

Future stability may depend on global economic recovery, oil price moderation, and policies that attract foreign investment and manage the trade deficit effectively. The Rupee's journey reflects the interconnectedness of today's global economy, illustrating how local currencies are shaped by both internal dynamics and the international financial landscape.