The Indian rupee fell to a new low as it fell by 51 paise and was pegged at 80.38 against the US dollar in early trade on Thursday, September 21, PTI numbers showed. According to ANI, the rupee on the day opened at 80.28 against the greenback, which scaled a new peak as it tracked further strength. The new low of rupee comes against the background of the US Federal Reserve hiking its interest rates by another 75 basis points on Wednesday, and hinting at more aggressive rate hikes in the coming months to tame inflation.
At the interbank foreign exchange, the local currency was trading at 80.47 against the dollar, down 51 paise from its previous close. The rupee opened at 80.28 and touched a record low of 80.47 a dollar in initial deals.
As per Bloomberg, the rupee was quoted at 80.3725 against the greenback, after hitting a record low level of 80.4375. On Wednesday, the Indian currency closed just below the psychologically key 80-dollar mark, at 79.96 ahead of the Fed’s announcement. While the Fed hiked the rates by 75 basis points, more importantly, it hinted that more hikes were coming and that rates would stay elevated until 2024. As a result, Asian currencies opened weaker, with the Chinese yuan slipping below 7.10 to the dollar.
Meanwhile, the US dollar climbed up sharply to a new 20-year peak on the day as the rate hike spooked investors and advanced 0.88 per cent to 111.61.
Rupee Falls to Record Low, What Will Happen Now?
The record fall in rupee may make India an unattractive business destination, experts said, while the RBI may also increase its own repo rates in the future.
“With the US Fed increasing rates by 75 bps and hinting at more rate hikes in the future, we believe the Dollar index can see a significant increase, implying most major market currencies, including INR should be under pressure," said Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS.
“If we start seeing INR depreciating, then from a USD returns perspective for FPIs, India becomes unattractive. We could also witness a reversal of FPI flows in the near to medium term, which will increase market volatility," he explained.
“Higher interest rates in the US will force major central banks, including India, to increase interest rates to stem the pressure on their domestic currencies and with increased interest rates and cost of capital, market multiples can contract. We believe in the near term, Indian equity markets can witness increased volatility," added the expert.
Santosh Meena, Head of Research at Swastika Investmart Ltd said that it would be tough for the RBI to intervene and take strict actions to curb rupee depreciation at present.
“We reckon that the rupee is expected to remain under pressure despite the improvement in domestic economic prospects. Additionally, for the RBI it will be difficult to intervene and take strict actions to curb the rupee depreciation as the liquidity in the banking system has swung into deficit mode after remaining in a surplus mode for almost 40 months and at the current juncture, the RBI doesn’t want to derail the economic recovery," said Meena.
“Technically, the USDINR pair witnessed a breakout of ascending triangle formation that may lead to further weakness in the rupee towards the 81.5-82 zone however 81 will be an intermediate and sacrosanct support level for the rupee," he added.
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