Indian rupee hits record low as U.S. dollar gains strength

The Indian rupee fell below 86.50 against the U.S. dollar. This decline happened because of the strong U.S. dollar and possible outflows from Indian markets. Foreign investors sold over $4 billion worth of Indian stocks and bonds in January.

On Monday, the rupee fell to 86.54, which is its weakest level so far. It dropped by 0.7% in a single day. This was the rupee’s worst one-day performance in almost two years.

The U.S. dollar index increased by 0.2% and reached close to 110. This was its highest level in more than two years. Other Asian currencies also weakened. The Indonesian rupiah fell by 0.6%.

A strong U.S. jobs report caused the dollar to rise. It also led to higher U.S. bond yields. These factors increased the pressure on the rupee. Weak inflows from foreign investors added to the rupee’s decline.

For the past three months, the rupee has been steadily losing value. Experts believe it will weaken further. Jefferies predicts the rupee could fall to 88 soon. ANZ Bank expects this to happen by March.

Analysts say the rupee is overvalued based on its real effective exchange rate (REER). This has hurt its global competitiveness. Changes in the leadership of India’s central bank may bring a more flexible exchange rate policy.

The loss of competitiveness is a major concern. Slower economic growth has added to the problem. According to ANZ Bank, a weaker rupee could help improve the situation.

The rupee’s current situation reflects a broader trend in global currency markets. The rising strength of the U.S. dollar is affecting many currencies worldwide. The future of the Indian rupee depends on both global and local economic factors.