Trade deficit expands as capital outflows worsen, Indian Rupee falls to record low.

The Indian Rupee hit a historic low for the seventh consecutive trading day on Thursday, as the downward trend in this quarter further widened due to the expanding trade deficit and weak capital flows. The Rupee fell to a historic low of 85.2525 against the US dollar, similar to most Asian currencies. Since early October, the currency has depreciated by 1.74%, marking its worst quarterly performance since the third quarter of 2022. India's evolving balance of international payments, as well as the rise in the US dollar and US Treasury yields since Trump won the US election, have weakened South Asian currencies. According to IDFC First Bank, India's trade deficit widened by 18.4% year-on-year from April to November. Meanwhile, data from NSDL shows an outflow of $10.3 billion from stocks and bonds in this quarter, reversing the trend of $20 billion inflow in the previous quarter. Economists believe that these factors have led to a deficit in international payments this quarter. Compared to a surplus exceeding $60 billion in the previous fiscal year, the international payment deficit for this fiscal year is expected to be between $20 billion and $30 billion. IDFC predicts that the international payment deficit, along with a stronger US dollar, will put pressure on the Rupee, with expectations that it will fall to 86 Rupees against the US dollar by September 2025. The rebound of the US dollar after Trump's election victory has added to the headwinds for the Rupee. The prospect of rising inflation has kept the US dollar index near its highs since the beginning of the year. The outlook for rising inflation prompted Federal Reserve officials earlier this month to forecast a smaller rate cut next year in order to boost economic growth.