Rupee Hits Record Low as Dollar Strengthens and Stock Market Faces Volatility

The Indian Rupee hit an all-time low on Wednesday, falling to 85.8562 against the dollar. This drop was caused by a stronger dollar and weakness in the Indian stock market. The dollar index rose 0.1%, influenced by declines in the Chinese yuan and Indonesian rupiah.

State-run banks in India attempted to reduce the rupee’s decline by selling dollars into the market, which helps increase the supply of dollars and stabilize the rupee. However, this effort wasn’t sufficient to fully prevent the rupee from falling further.

The rupee’s weakness is mainly due to the US Federal Reserve’s decision to keep the dollar strong. In December, the Federal Reserve signaled it would continue raising interest rates, which makes investments in the US more attractive. Higher interest rates offer better returns on US assets, so investors increased their demand for the US dollar. As more people buy dollars, its value goes up, making the rupee weaker in comparison.

Additionally, the rupee was also impacted by recent volatility in the Indian stock market. Foreign investors have been selling off Indian stocks and bonds, totaling about $2 billion in sales this month.

This outflow of foreign investment puts pressure on the rupee, as the demand for the rupee decreases when investors pull their money out of the country. At the same time, the Indian stock market, including the BSE Sensex and NSE Nifty indices, ended flat and is in a "correction" phase, meaning prices are lower than their recent highs, which further weakens investor confidence.