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The Indian rupee has faced a challenging 2024, hitting record lows against the U.S. dollar. On December 31, the rupee closed at 85.6150 per dollar, marking its seventh straight year of decline and a 2.8% depreciation for the year. This trend reflects mounting pressures from global and domestic factors.
Why the Indian Rupee is Losing Value Against the Dollar
A combination of international and local challenges has weakened the Indian rupee against the dollar:
1. Strong U.S. Dollar:
A robust U.S. dollar, driven by the Federal Reserve’s monetary policies, has reduced the appeal of other currencies, including the rupee. The fewer-than-expected interest rate cuts by the Fed in 2024 only added to the dollar’s strength.
2. India’s Economic Slowdown:
Domestic economic growth has shown signs of deceleration, coupled with an expanding trade deficit. These factors have heightened concerns about the health of India’s economy.
3. Foreign Investment Outflows:
Significant outflows of foreign portfolio investments, totalling $11.7 billion in the last quarter of 2024, have intensified the rupee's depreciation against the dollar.
Impact on India’s Economy
The continuous decline in the rupee’s value has widespread implications for the Indian economy:
Rising Import Costs:
A weaker rupee has increased the cost of essential imports, particularly oil and electronics, leading to inflationary pressures in the domestic market.
Mixed Export Benefits:
Although a lower rupee should make Indian exports more competitive globally, the rupee's real effective exchange rate (REER) shows signs of overvaluation, potentially reducing this advantage.
Foreign Debt Concerns:
Companies with significant dollar-denominated debts face higher repayment costs due to the rupee’s weakness, putting financial strain on several sectors.
How the Reserve Bank of India is Responding
The Reserve Bank of India (RBI) has intervened actively in the forex market to stabilise the rupee. These interventions, however, have resulted in a considerable depletion of India's foreign exchange reserves, which are now significantly below their 2024 peak. Experts suggest that the RBI may adopt a more flexible approach to managing the rupee in 2025, potentially loosening its control over the currency to adapt to global market dynamics.
What Lies Ahead for 2025?
Economists predict that the rupee may continue to face downward pressure in 2025, with an expected range of 85.20–85.80 per dollar. Factors such as global monetary policies, India’s economic reforms, and the pace of capital inflows or outflows will play a critical role in shaping the rupee’s trajectory.
Conclusion
The Indian rupee’s declining value against the dollar signifies complex economic challenges, both global and domestic. As the world enters 2025, navigating these challenges requires thoughtful policy measures from the Indian government and the RBI, as well as an adaptable approach from businesses and investors. The currency's path forward will be closely tied to broader economic trends and policy responses.
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Why Is the Indian Rupee Falling Against the Dollar? Impacts and Outlook
Description: Discover the reasons behind the Indian rupee’s decline against the U.S. dollar in 2024, its impact on the economy, and expert predictions for 2025.
Keywords: Indian rupee, falling rupee, U.S. dollar, currency depreciation, RBI intervention, 2024 outlook, Indian economy 2025 World Trends Now
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