Rupee plunges to all-time low of 87.94 against US dollar, may worsen: Reports

The rupee's fall comes at a time when it has already become Asia's worst-performing currency of the year and as the RBI tries to build up its forex reserves.

The rupee plunged 44 paise to hit an all-time low of 87.94 against the US dollar in early trade on Monday.

The RBI cut the benchmark repo rate by 25 basis points (BPS) to 6.25% from 6.5% earlier last week and the US dollar also continued to show strength, putting pressure on the rupee.(Representational Image/Pixabay)

This comes at a time when the rupee has already become Asia's worst-performing currency of the year after experiencing a series of record lows, according to a Bloomberg report which cited brokerage firm Nomura.

Why did the rupee fall?

The rupee's fall is also expected to get worse as the Reserve Bank of India (RBI) may continue to build up its foreign exchange reserves, according to a Bloomberg report.

“With the RBI maintaining its FX stance, we see a risk of rupee underperformance, as the central bank may continue to favor building a substantial FX reserves buffer,” the report quoted Nomura as saying.

The RBI cut the benchmark repo rate by 25 basis points (BPS) to 6.25% from 6.5% earlier last week and the US dollar also continued to show strength, putting pressure on the rupee.

The RBI rate cut was also the first one in almost five years. It came at a time when India’s GDP growth was down to a 5.4% for the second quarter of the financial year 2024-25, the slowest growth in seven consecutive quarters, and also when when inflation for December 2024 was found to have eased down to a four-month low of 5.22%.

On top of this, an article by news agency ANI cited a Bank of Baroda report as saying that the RBI may cut interest rates further by 50 basis points (bps) in 2025 and shift its stance from "neutral" to "accommodative."

However, the exact timing of this remains uncertain.

“As RBI embarks upon the rate cut cycle, it can be expected that more cuts are also on the cards, while the timing can be debatable. Cumulatively, we are pricing in 75bps cut in this calendar year,” the article quoted the report as saying.

Apart from the 25 bps rate cut last week, the RBI had also lowered the Standing Deposit Facility (SDF) rate to 6% and the Marginal Standing Facility (MSF) rate to 6.5%m retaining its policy stance as “neutral.”