The Indian Rupee depreciated against the US dollar on Friday, weighed down by persistent capital outflows from the Indian equity market. Concerns regarding global financial market volatility and a general increase in risk aversion among investors have prompted foreign institutional investors (FIIs) to reduce their exposure to Indian equities.
Factors Contributing to Rupee Depreciation
- Capital Outflows: Sustained selling pressure from FIIs in the domestic equity market has led to significant capital outflows, putting downward pressure on the Rupee.
- Global Financial Instability: Heightened uncertainty in global financial markets has increased risk aversion, prompting investors to move towards safer assets like the US dollar.
- Demand for US Dollars: Increased demand for US dollars from importers and other market participants further contributed to the Rupee’s decline.
Market Reaction
The Rupee’s depreciation has raised concerns about its potential impact on inflation and the overall economy. The Reserve Bank of India (RBI) is closely monitoring the situation and may intervene in the foreign exchange market to stabilize the currency if necessary.
Expert Opinions
Analysts suggest that the Rupee’s weakness is likely to persist in the near term, given the prevailing global economic conditions and continued capital outflows. However, they also believe that the RBI has sufficient reserves to manage the volatility and prevent a sharp depreciation of the currency.
