This week marked a striking moment for the Indian economy as the rupee displayed notable weakness in the foreign exchange market.On Monday,it weakened by 9 paise,ultimately closing at an historic low of 84.89 against the US dollar.This downward trend is igniting widespread concern among market participants.Analysts suggest that the rupee's steep decline is primarily attributed to growing economic softness within India,coupled with rising yields on US bonds.

In recent months,the indicators of economic growth in India have appeared increasingly lackluster.Reports from Bloomberg indicate that the Indian government has revised its growth forecast for the fiscal year down to a modest 6.4%,the slowest rate experienced in four years.Particularly troubling is the consumer market,a critical driver of economic expansion,which is facing severe challenges.Data from December showed a drop in auto sales,and numerous consumer goods companies are reporting tough market conditions.Sales growth in the fast-moving consumer goods sector plummeted from 11% the previous year to a meager 2.8%,highlighting a significant reduction in consumer willingness and ability to spend.Consequently,this downturn adversely impacts the profitability of domestic businesses and hampers overall economic dynamism.

Simultaneously,the sharp rise in US bond yields adds an additional layer of downward pressure on the Indian rupee.A series of recently released optimistic economic data from the US showcases a robust labor market.Job openings surged from an anticipated 7.7 million to a staggering 8.1 million,suggesting the US labor market's vibrancy and the underlying strength of economic development.Furthermore,the services sector is also witnessing positive growth trends,solidifying the foundations for a resilient US economy.A significant factor contributing to the increase in the 10-year US Treasury yield—now at 4.69%,its highest level since April of last year—is the issuance of $39 billion in 10-year bonds.This influx of capital is acting like a magnet,drawing global investment toward the US and placing emerging market currencies like the Indian rupee under considerable strain.

Despite these adverse circumstances,a weakening dollar has somewhat cushioned the rupee's slide.In interbank forex trading,the rupee opened at 84.83,rebounding from last week's historic low,gaining 8.80 paise against the dollar.The US dollar index fell slightly by 0.14% to 106.85,providing the rupee with a bit of relief amidst a relatively soft dollar.

On the macroeconomic front,not all news is bleak for India.In November,the wholesale inflation rate based on prices dropped to a three-month low of 1.89%.Lower prices present a silver lining for businesses and consumers within India.Reduced inflation rates suggest potential decreases in production costs for companies and a boosted purchasing power for consumers,which may alleviate some pressure on economic growth.

However,despite a 0.78% drop in global benchmark Brent crude oil futures,the threat posed by rising crude oil prices remains.Anuj Choudhary,a research analyst at Mirae Asset Sharekhan,highlights that escalating oil prices may place further strain on the rupee.India's heavy reliance on oil imports means that increased prices will elevate the country's import costs,thereby widening the trade deficit and contributing further to the rupee's depreciation.

In the context of the Indian stock market,the 30-share benchmark index,Sensex,closed down by 384.55 points,marking a decline of 0.47%,and resting at 81,748.57 points.Concurrently,Nifty dropped by 100.05 points,or 0.4%,closing at 24,668.25 points.This downturn in the stock market mirrors investors' fears regarding the economic prospects of India and could potentially lead to capital outflows,exacerbating the downward pressure on the rupee's exchange rate.

Nonetheless,Foreign Institutional Investors (FIIs) inflow and the cooling inflation could provide some support for the rupee at lower levels.Recent data from exchanges indicate that foreign institutional investors net purchased 2,335.32 crore rupees in the capital markets last Friday,illustrating a lingering interest and confidence from foreign investors in the Indian market.Such inflows are crucial,as they can lend financial support to the Indian economy and help mitigate the rupee's depreciation pressures.

In further developments,last Friday,the Reserve Bank of India (RBI) announced a drop of $3.235 billion in the country's foreign exchange reserves for the week ending December 6,bringing the total reserves down to $654.857 billion.This decline may erode the RBI's ability to intervene effectively in the forex market,which could affect the stability of the rupee.