Indian rupee ends all-time of 85.0775 against dollar after US Fed signals fewer rate cuts in 2025

Indian Rupee

Indian rupee ended record low on December 19 to 85.0775 against the US dollar due to surge in dollar index after the US Federal Reserve signalled fewer rate cuts in 2025.

Indian rupee ended at 85.0775 against the US dollar, as compared to 84.9550 against the green back close on the previous trading session. The local currency hit the 85 mark first time today.

With today's fall, Indian rupee is down 2.20 percent against the US dollar year-to-date. Even after this, it is least volatile currency among the peers. On December 18, Moneycontrol indicated that the rupee may touch 85 against the dollar.

The Federal Reserve on Wednesday lowered its key interest rate by a quarter percentage point, the third consecutive reduction in key policy rate.

The Federal Open Market Committee cut its overnight borrowing rate to a target range of 4.25 percent to 4.5 percent, back to the level where it was in December 2022, when the rate hikes were on.

It also indicated that it would lower the rates twice more in 2025, according to the closely watched 'dot plot' matrix of individual members’ future rate expectations. "I think we're in a good place, but I think from here it's a new phase and we're going to be cautious about further cuts," news agency Reuters quoted Fed chair Jerome Powell as saying in a press conference.

The dollar index, which measures the US currency against a basket of six currencies, climbed a two-year high after the US Fed policy decision. The dollar index was up 0.05 percent to 108.086. This was highest level since November 2022.

In the last few months, the rupee has been depreciating due to multiple factors such as outflows from domestic equity markets, overall strength of the dollar against major currencies on the back of hawkish outlook from the US Fed and also because of an air of uncertainty surrounding the upcoming Donald Trump regime.

Further, arbitrage opportunities in interims between onshore and offshore rupee market and weakening of Asian currencies, particularly Chinese yuan, are all putting pressure on the Indian rupee.

The depreciation of the rupee is a cause for concern for the Reserve Bank of India (RBI) because of its intervention in the currency market, which lead to a fall in foreign exchange reserves. In last two months, India’s foreign exchange reserve has reduced by over $46 billion.

As per RBI data, the forex reserves shrank to $654.857 billion as on December 6 from $704.885 billion on October 4. Before October 4, India’s foreign exchange reserves were rising constantly due to intervention by the RBI in the spot forex market.

Kunal Sodhani, vice-president of Shinhan Bank, said the RBI may look forward to built in foreign exchange reserves considering too many uncertainties prevailing for 2025, backed by geopolitical issues, countries struggling on the political front, rate cycle may remain under question as inflation may start picking up again because of Trump policies on tariffs, immigration and taxation.