Rupee: Rupee dives to new low, Dalal Street mirrors fall in global markets

MUMBAI: The rupee fell more than a percentage point to a new low of 80.87 against the dollar on Thursday, a day after the US Federal Reserve hiked interest rates with a hawkish undertone, raising fears of capital outflows from emerging markets including India , brought back abroad. Equities also fell, following the decline in global markets after the Federal Reserve stuck with its aggressive rate-cutting campaign to curb inflation.

“Fear of foreign money outflows is back to haunt investors as the Federal Reserve’s monetary policy statement was more hawkish than expected,” said Bhaskar Panda, executive vice president at

. “On the other hand, renewed geopolitical tensions are worrying investors who are once again seeking safety in dollar-backed assets. This has pushed the rupee to a new record low overall amid limited central bank intervention.”

On Friday, foreign portfolio investors net sold ₹2,509.55 billion worth of shares, according to preliminary data. Their domestic counterparts were buyers of ₹263 crore.

NSE’s Nifty fell 88.5 points, or 0.5%, to close at 17,629.80. BSE’s Sensex fell 337 points, or 0.57%, to end at 59,119.72.


RBI absence

Fed Chair Jerome Powell has made it clear that he will not stop tightening until he is confident of reaching the 2% inflation target. While the Fed’s rate hike of 75 basis points to a range of 3% to 3.25% was in line with expectations, the central bank’s forecasts were for the benchmark interest rate to rise to 4.40% by the end of the year before its 2023 peak of 4.60 % would be seen as more hawkish than the market expected. “The Federal Reserve is clearly signaling higher interest rates for the longer term, which is negative for global equity markets,” said Sanjeev Prasad, co-head of Kotak Institutional Equities. “Higher US interest rates will negatively impact the US market and a higher US dollar will not help emerging markets.”

The rupee lost 1.11% against the dollar, weakening to a lifetime low of 80.87, which was also the closing level, from 79.98 the day before, Bloomberg data shows. It was the second worst performing emerging market currency after the South Korean won. The US dollar index, which measures the unit against other major currencies, hit 110.086 in Asian morning trade, hitting a new two-decade high.

RBI absence

The RBI was conspicuous by its absence from the FX market on Thursday, causing the rupee to slide, according to traders. Earlier, the central bank had sold dollars to halt the rupee’s slide past the 80 mark. The element of surprise added to the local unit’s decline as traders said the rupee is on its natural path after opening at 80.28 against the dollar. The rupee had previously fallen to a lifetime low of 80.13 against the US dollar on August 29.

“After a period of heavy central bank intervention, the FX market saw muted intervention on Thursday,” said Anindya Banerjee, currency analyst at Kotak Securities. “The rupee should now find a natural level, beyond which we can expect resistance again.

The lack of central bank intervention led to exchange rate volatility. Bloomberg’s one-month volatility index rose 129 basis points to 6.38%. A basis point is 0.01 percentage points. The rupee is down more than 8% over the calendar year, making it the 8th best performing emerging market currency.

“The Fed’s announcement has fueled dollar strength which weighed on all other emerging market currencies including the rupee,” said Parul Mittal, head of financial markets at Standard Chartered Bank India. “The weakening of the rupee was not due to a domestic factor, but followed a global trend from which no currency is immune.”

Certainly, the fall in the rupee will help exporters earn more from their foreign liabilities. This bodes well for a country striving to become globally export competitive.

India’s foreign exchange reserves peaked at US$642 billion on September 3, 2021. Extensive central bank intervention has eroded the stock by over $90 billion to $551 billion. Rupee: Rupee dives to new low, Dalal Street mirrors fall in global markets

Russell Falcon is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – The content will be deleted within 24 hours.

Related Articles

Back to top button