The Indian rupee closed at a lifetime low of 85.79 against the US dollar on the Week-ended trading session, weighed down by robust demand for the greenback from importers, continued foreign portfolio investor (FPI) outflows, and weak domestic equity performance. This marks a 4-paise decline from its previous close.

Persistent Dollar Strength and Market Sentiment

 The US dollar index, a measure of the greenback's performance against a basket of six major currencies, remained strong, breaching the 109-mark. Forex experts attributed the dollar’s rise to expectations of fewer rate cuts in the US and its economy outperforming global peers.

Reserve Bank of India’s Intervention

Reports suggest that the RBI intervened to sell U.S. dollars, providing some support to the rupee at lower levels. However, such measures could not prevent the currency from slipping further. Economists noted that while rate policies and foreign exchange (FX) policies are interlinked, prioritizing growth over short-term stability might better serve long-term economic objectives.

Capital Flows and Current Account Deficit

Economists predict that the rupee will experience more two-way movements in 2025. Despite a manageable current account deficit below 1.5% of GDP, volatile capital flows, coupled with a strengthening US dollar, may continue to pressure the rupee.

Forex Reserves Dip to Eight-Month Low

India’s forex reserves declined by USD 4.112 billion to an 8-month low of USD 640.279-billion as of December 27, 2024. Analysts cite external factors, including global economic uncertainty and capital outflows, as contributing to the dip.

Global and Domestic Market Trends

In global markets, Brent crude oil prices slipped 0.43% to $75.60 per barrel, signaling mild relief for importers. Meanwhile, domestic equity markets faced significant losses. The BSE Sensex dropped 720.60 points (0.90%) to close at 79,223.11, while the Nifty fell 183.90 points (0.76%) to settle at 24,004.75. Foreign institutional investors (FIIs) net sold ₹4,227.25 crore in the capital markets on Friday, reflecting a cautious stance amid global volatility.

Outlook for 2025 -Looking ahead, analysts predict mixed trends for the rupee in 2025. The currency's performance will largely hinge on the dollar's trajectory, global capital flows, and India’s monetary policy. While recent RBI interventions offer some hope, persistent challenges remain.