Rupee hits record low, FII selling driven by U.S. policies

The recent depreciation of the Indian rupee against the U.S. dollar and the concurrent sell-off by foreign institutional investors (FIIs) in Indian markets are primarily influenced by external factors, particularly U.S. trade policies, rather than domestic economic fundamentals, according to a senior government official. According to information, the Indian rupee reached a record low of 86.65 per U.S. dollar last week. This decline is largely attributed to concerns over potential U.S. tariffs on major trading partners, including Canada, Mexico, and China. The Reserve Bank of India (RBI) has actively intervened in the foreign exchange market to mitigate the rupee's depreciation, utilizing its reserves to stabilize the currency. 
Union Finance Minister Nirmala Sitharaman reportedly, acknowledged the rupee's depreciation against the U.S. dollar as a concern due to its impact on import costs. However, she emphasized that India's macroeconomic fundamentals remain strong, noting that the rupee has maintained stability against other major currencies. This stability suggests that the recent depreciation is not indicative of underlying economic weaknesses.
The RBI's interventions have led to a decline in India's foreign exchange reserves, which decreased by over $70 billion in the past three months, standing at $629.55 billion as of January 24, 2025. Despite this, the reserves saw a recent uptick, halting a seven-week losing streak, as pressures on the rupee eased. 
The substantial selling by FIIs, who have withdrawn nearly $9 billion from Indian stocks and bonds in January, is also linked to U.S. trade policies. According to sources, many FIIs are booking profits amid global uncertainties but are expected to return, reflecting confidence in India's economic resilience. The rupee's decline and FII outflows are driven more by external geopolitical factors than by domestic economic issues. India's strong macroeconomic fundamentals and proactive measures by the RBI are expected to navigate the nation through these external challenges, noted experts.

(Business Correspondent)