Rupee dives to fresh record low as US Fed hawks circle above


The rupee is down over 2% in October. The 10 year bond yield hit a fresh four month high of 7.51% — a level last seen on 17 June.

Indian rupee on Thursday opened marginally lower to hit a fresh record low against the US dollar tracking losses in emerging Asian currencies as increasing speculation on aggressive tightening by the Federal Reserve weighed on sentiment.

The domestic currency opened at 83.04 a dollar and touched a fresh all-time low of 83.08. At 9.15am, the rupee was trading at 83.06, down 0.08% from its previous close of 82.99.

The Bloomberg Dollar Spot Index climbed as much as 0.2% after jumping 0.6% on Wednesday. Federal Reserve Bank of Chicago President Charles Evans said that monetary policy needs to be tight to confront inflation and that the central bank may have to do more if inflation worsens.

Overnight, the Federal Reserve Bank of St Louis President James Bullard said he expects the central bank to end its “front-loading” of aggressive interest-rate hikes by early next year and shift to keeping policy sufficiently restrictive with small adjustments as inflation cools.

On Wednesday, the home currency saw a sudden weakness at the end of the day and hit a record low after the US 10 year yield jumped over 4% — a level last seen in July 2008 — and the dollar rallied. The fall also came after a bigger than expected rise in UK inflation raised concerns that persistent price increase will prolong a recession in the country.

UK CPI rose 10.1% in September from 9.9% a month ago, matching a 40 year high reached in July.

“This will surely speed up the hiking pace for the central banks,” said CR Forex in a note to traders.

The rupee is down over 2% in October and close to 12% down in 2022. The 10 year bond yield hit a fresh four month high of 7.51% — a level last seen on 17 June.

“Besides domestic inflation worries, global uncertainties and spillover risks remain high, with the US Fed determined to tighten policy progressively till inflation makes a decisive turn, leaving the door open for more pain for emerging markets’ assets. We expect more hikes of 60 basis points in this fiscal year, driven by the need for price stability to anchor inflationary expectations, and backstop rate differentials to support the currency. Into FY24, the policy committee is expected to hit pause,” said Radhika Rao economist at DBS Bank.

(Bloomberg contributed this story)

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