Rupee at all-time low; FinMin says it’s the dollar gaining strength

The Finance Ministry on Monday put a brave face and played down anxieties as the rupee suffered its biggest single-day percentage loss against the dollar and the equity benchmark indices Sensex and Nifty tumbled in early trade after the US President Donald Trump imposed massive tariffs on Canada, China and Mexico, sparking fears of a broader trade war.
Indian rupee dropped 0.67 per cent to a record closing low of 87.1850 against the dollar. Benchmark BSE Sensex closed down 0.4 per cent at 77,187, while the broader NSE Nifty 50 index declined 0.5 per cent to 23,361, tracking a global stocks sell-off after Trump ordered 25 per cent tariffs on Mexico and Canada and 10 per cent on China.

In Delhi, Finance Minister Nirmala Sitharaman told the Lok Sabha that the value of the rupee is is market-determined, with no target or specific level or band. “Various domestic and global factors influence the exchange rate of the INR, such as the movement of the Dollar Index, trends in capital flows, level of interest rates, movement in crude prices, current account deficit, etc,” she said.
Since the commencement of October-December quarter of 2024, rupee along with other Asian currencies, has depreciated against the dollar amid uncertainties following the US election results. The US Dollar Index rose 6.5 per cent from October 1, 2024, to January 27, 2025, with all major Asian currencies depreciating are against the $.
“Rupee has depreciated 2.9 per cent during this period, least among major Asian currencies, barring the Hong Kong Dollar. South Korean Won, Indonesian Rupiah and Malaysian Ringgit depreciated by 8.1 per cent, 6.4 per cent and 5.9 per cent in this period,” the Finance Minister said. Further, all G-10 currencies also depreciated during this period by more than 5.5 per cent, with the Japanese Yen, British Pound and Euro depreciating by 7 per cent, 6.6 per cent and 5.8 per cent, respectively.
US yields
Narrowing interest rate differential between the US and India also impacted the rupee. The US 10-year yields rose 75 bps during October 1-January 27 ; while Indian generic 10-year yields remained relatively stable. Among other factors, FPI outflows of around $19.5 billion and the trade deficit of $31.8 billion for November 2024 also exerted pressure on rupee, the FM said.
“The overall impact of exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market. Furthermore, the imports in the economy also depend on various factors, including the demand and supply of commodities in the international market, kind of tradeable (i.e. essential or luxury items), freight costs, availability of substitute goods, etc. Thus, the impact of the movement of the exchange rate on the import cost and, hence, on domestic inflation and consumer cost of living cannot be isolated,” Sitharaman said.
Later, Finance Secretary Tuhin K Pandey said: “There is no concern about the value of the rupee. The volatility in rupee is being managed by the RBI.” Taking it forward, Economic Affairs Secretary Ajay Seth said in an interview to businessline: “it is the strength of the dollar, rather than any currency getting weakened.”