The Indian rupee on Friday started on a weak note and touched the 81 mark, which is its newest low against the US dollar after a choppy Thursday. The Rupee opened at 81.03 a dollar and touched an all-time low of 81.13. It touched 81.15 a dollar, almost down by 0.33 per cent from 80.87 on Thursday. The low is on the back of US Treasury yields climbing to fresh multi-year highs and dollar demand from importers. As per reports, the 10-year bond yield jumped 6 basis points to hit a two-month high on the back of a surge in US treasury yields.
So far this year, the domestic currency has recorded a drop of 8.48 per cent, as per news reports. On Thursday, the currency saw a major fall and saw its biggest single-session percentage decline since February on the back of the US Fed’s hawkish hike of interest rates.
Experts feel that the rupee is struggling due to the Reserve Bank of India’s less aggressive stance while taking action to tame inflation. As per reports, in the last seven sessions of the total eight, the currency has seen a major drop and lost over 2.51 per cent in the last few days.
Just before the Fed’s hike announcement, the Indian currency was hovering around the 79.96 level. After the Fed hiked the rates by 75 basis points, the rupee breached the 80-mark, which was about 7 per cent lower than in January. Not just the rupee, most Asian currencies opened on a weaker note, like the Chinese yuan dipped below 7.10 to the US dollar. In comparison, the US dollar climbed up sharply to a new 20-year peak on September 22 (the day of the rate hike), which shook global investors. The dollar advanced 0.88 per cent to 111.61.
What lies ahead?
As the US Fed has promised more hawkish rate hikes in the coming months, not just the rupee as major currencies will be under pressure as the Dollar index can see a significant increase. This would directly impact the business environment in India as a stronger dollar would make everything expensive for traders and companies.
On the other hand, after the Fed hike, most central banks, including the RBI, would be forced to increase their base interest rates to release the pressure on their domestic currencies. This would again increase the volatility in equity markets.
A host of experts also feel that the rupee will continue to remain under pressure even if there is a rate hike. They think that the central bank will be in a tight position to take strict actions to stop the rupee fall further as the liquidity in the banking system is back into the deficit mode after being in a surplus mode for almost 40 months due to Covid-19 and other reasons.
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