The rupee hit a record low against the US dollar on Monday, tracking losses in global equities amid worries of inflation.
At 9.10am, the home currency was trading at 77.28 a dollar, down 0.48 percent from its previous close of 76.93. The rupee opened at 77.06 and touched a low of 77.31 a dollar. Last time the rupee hit a low of 76.98 on March 7, 2022.
Global markets fell as traders questioned whether the Federal Reserve’s interest rate hike was enough to tackle inflation and Chinese leaders warned against doubting their zero-COVID stance. The Bank of England, while raising its interest rates, warned about a possible risk of recession.
Analysts say the persistence of high crude oil prices, and uncertainty over the length of the Russia-Ukraine war, have resulted in sustained inflationary pressure globally.
The fall in currency was also after continued selling by foreign investors. FII’s were net sellers for the seventh consecutive month with selling around $ 22.31 billion in equities.
Domestically, the Reserve Bank of India may also extend interest rate hikes amid worries that inflation would exceed its mandated target in the next six months, although a three quarter point increase is unlikely in the June meeting.
The 10-year bond yield rose 3 basis points to 7.484 percent. Yields have risen over 35 basis points after the RBI’s surprise rate hike last week.
“The Fed’s expected interest rate hikes and favourable outlook for the US economy could prompt outflow of funds from the domestic capital markets. Since the January 2021 policy, when the Fed signalled a rate hike and moves towards shrinking its balance sheet, the net outflows from the domestic capital markets amounted to $ 19 billion. Increased outflows and widening trade deficit could further pressure the rupee,” said Edelweiss Wealth Research in a note to investors.
“In terms of implications on the monetary policy, the RBI’s monetary policy action would primarily be driven by domestic considerations of inflation and growth. In continuation to yesterday’s unexpected interest rate increase, the RBI is projected to undertake a series of rate hikes in the coming months. For FY23, we foresee rate hikes of 60–70bps. Despite the impending rate increases, the likelihood of the rates surpassing the pre-pandemic levels (of 5.15 percent) in FY23 are low in our view,” the Edelweiss report said.
(With inputs from Bloomberg)
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