Tuesday's Talking Points
Weaker Indian Rupee – What’s in Store?
What’s the Point?
The Indian Rupee (INR) weakened to a record low of ₹84.38 against the US Dollar on Friday, logging its worst weekly fall since May 2024. This recent depreciation is being attributed to Foreign Portfolio Investor (FPI) outflows from Indian equity markets, and the expectations of a stronger US Dollar after the Republican Party won the US Presidential Election. A weaker INR warrants attention because it tends to increase in the cost of imports, putting an upward pressure on inflation. Having said that, in the last 1 year, the depreciation of the INR has not been significantly large among the major emerging market currencies (November 10, 2023 to November 11, 2024). As per the 61-currency nominal effective exchange rate index by Bank of International Settlements, the INR appreciated by 0.05% between December 29, 2023 and November 05, 2024.
Numbers in Perspective

Source: Bloomberg. *1 year: November 10, 2023 to November 11, 2024. Sample Period: Decadal Appreciation / Depreciation of INR vs USD for 2010 (Chart 2): December 29, 2000 to December 31, 2010
Potential Key Reasons that have / could lead to the weakening of Indian Rupee
- Near-Term Reasons
- Republican Party winning the US Presidential Election: A key outcome of the US Presidential Election on the global economy could probably be the levy of tariffs by the Republican Government on countries such as China and Mexico. While such an imposition of tariffs could increase the demand for US local goods and services, it could potentially lead to a slowdown in global trade, which could lead to a weakening of Asian currencies – Indian Rupee potentially being one of them.
- FPI Outflows in Indian Equity Markets witnessed in October 2024: FPIs have been net sellers of the Indian equity markets in the recent past. With China announcing a stimulus package and India being at relative premium to China and other Emerging Markets, India’s foreign outflows have been meaningful. This sell-off in October 2024 could have led to a downward pressure on INR.
- Medium-Term Reason
- US Real Yields higher in comparison to India: 2022 saw a hike in US interest rates by the Federal Reserve, an increase in US Government borrowing, and an increase in uncertainty in the outlook of the US economy. These factors led to an increase in US real yields. With US reals yields increasing relatively more than India’s real yields, the US Dollar appreciated vs the INR (Refer to the chart below). However, between January and September 2024, this differential has moved in favour of India, thus providing support to the INR.

Source: Bloomberg. (a) US vs India Real Yield Differential = US Real Yield – India Real Yield, (b) US Real Yield = US 10-year Treasury Yield – US Combined CPI, (c) India Real Yield = India 10-year Government Security Yield – India Combined CPI
Is India relatively better placed to manage the Rupee?
- Comfortable Forex Reserves: Currently, India draws comfort from the fact that it has developed a cushion in the form of its forex reserves, which has scaled new heights – touching nearly US$705 billion as on September 27, 2024. A key rising component of this forex reserves is Gold, which constitutes 10% of India’s forex reserves (Reserve Value of Gold: US$69.75 billion out of US$682 billion of total Forex Reserves as on November 01, 2024). Globally, the confidence of central banks on Dollar assets has been trending downwards, leading them to increasingly buy Gold. The Reserve Bank of India (RBI) has also followed course by purchasing Gold worth US$23 billion over the past 1 year (November 01, 2023 to November 01, 2024).
- Macroeconomic Stability: Structurally, India looks to be well placed with the outlook of domestic growth to be robust, corporate profitability remaining healthy, and policies being supportive and pro-growth. Amongst its near-term risks like escalation in geopolitical tensions, slowdown in government's reforms momentum, weakness in global growth, etc., a key risk is persistent inflation. As per Ministry of Statistics and Programme Implementation (MoSPI), India’s Consumer Price Index (CPI) stood at 6.21% for October 2024 – higher than 5.49% in September 2024, and above the upper tolerance level of 6%. This increase has taken place due to a higher Food Inflation (10.9% in October vs 9.2% in September), resulting from rising prices of vegetables, fruits, and oils and fats.
Despite these risks, India remains amongst the fastest growing major economies, and is expected to retain that position as per forecasts by International Monetary Fund (IMF). With Make-in-India initiatives like Production-Linked Incentive Scheme, National Infrastructure Pipeline, the Government is building a holistic domestic manufacturing ecosystem to not only satisfy local demand, but also increase its potential for exports. This could help in improving foreign exchange reserves, which could stabilise the INR, and aid the financial health of the country.
Sources: Bloomberg, RBI, MoSPI, and other publicly available information
About Tuesday’s Talking Points (TTP): TTP is an effort by HDFC AMC to guide key conversations in the Indian financial markets and investing ecosystem. We aspire to do this by providing relevant facts, along with our perspective on the issue at hand. If you have a topic that you would like to be featured here, please write to us at [email protected]
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