Indian Rupee Hits Record Low Amid Trade Uncertainty Despite Strong Growth

Post by : Saif Nasser

The Indian rupee fell to a record low on Monday, trading at 89.59 against the U.S. dollar, surpassing its previous record of 89.49 set just two weeks ago. This comes even as India reported a remarkable GDP growth of 8.2% in the September quarter, far exceeding expectations of 7.3%, highlighting the paradox of strong economic performance alongside a weakening currency.

Economists and bankers say the rupee’s decline is largely driven by weak trade and portfolio flows, as well as delays in reaching a U.S.-India trade deal. High tariffs of up to 50% on Indian exports remain in place, denting export growth and limiting foreign investment inflows. Without progress on the trade front, the rupee has had to rely heavily on central bank interventions for support.

In addition to trade issues, other factors have pressured the currency. Importers are hedging against a weakening rupee, the balance of payments position has turned less supportive, and positions maturing in the non-deliverable forwards market have also added strain. State-run banks were reportedly offering dollars intermittently to help stabilise the currency.

Analysts at J.P. Morgan said a “calibrated” depreciation of the rupee is both inevitable and desirable under the current macroeconomic conditions. They added that the longer the trade deal remains stalled, the more the rupee will need to adjust to offset trade imbalances and support the economy.

Despite the drop in the rupee, India’s strong economic performance continues to attract attention globally. The 8.2% GDP growth reflects robust domestic demand and recovery in key sectors, but the currency’s weakness underscores the challenge of balancing external trade pressures with domestic economic gains.

Investors and policymakers are now watching closely for developments on the U.S.-India trade front, as any progress could help stabilise the rupee and boost confidence in India’s financial markets. Until then, the currency may continue to face pressure despite the country’s impressive economic performance.