Winning Bizness Desk

Mumbai.The Indian rupee reached an all-time low on December 23, dropping 7 paise against the US dollar to close at 85.19 per dollar. This marks the rupee's weakest position ever, surpassing its previous low of 85.08 on December 19, 2024. According to experts, the depreciation of the rupee is primarily attributed to the strengthening of the US dollar and rising crude oil prices. Foreign currency traders have highlighted two major factors: high demand for the US dollar and geopolitical uncertainties that have driven up crude oil prices. Last week, the US Federal Reserve announced plans for two interest rate cuts in 2025, boosting the dollar index by 0.38%, which now stands at 107.75.

Costlier Imports and Overseas Expenses

A weaker rupee means higher import costs for India. Items such as oil, electronics, and other imported goods will become more expensive. Additionally, overseas travel and education have become costlier for Indian citizens. For example, when the rupee was valued at 50 against the dollar, Indian students studying in the US needed ₹50 to buy $1. Now, with the exchange rate at 85.19, students must pay ₹85.19 for $1. This increase significantly raises the cost of tuition, living expenses, and other necessities abroad.

How Currency Values Are Determined

Currency depreciation refers to the decrease in the value of one currency relative to another, in this case, the Indian rupee against the US dollar. Each country maintains foreign currency reserves for international transactions, and fluctuations in these reserves impact currency values. If India's foreign exchange reserves decrease compared to the US dollar reserves, the rupee weakens. Conversely, an increase in reserves strengthens the rupee. This mechanism is known as the floating exchange rate system. The continued depreciation of the rupee highlights the challenges posed by global economic pressures, underscoring the importance of sound monetary policies to stabilize the currency and mitigate its impact on the economy.