MUMBAI: The rupee hit a new low of 78.28 in intraday trade and closed below the 78 level for the first time on Monday as foreign investors sold off the stock markets on fears that US Fed could raise interest rates further.
One forex dealer said the markets were beginning to factor in a 75-basis-point-increase in interest rates in the United States.
Rupee opened weak, crossing the level of 77, foreign investors sold Indian shares. It closed at 78.28 in intraday trade before closing at 78.04, down 20 paise from Friday’s level of 77.84.
It was not just the rupee, many other currencies including the Japanese yen, the Australian dollar and the UK pound fell against the dollar. The dollar index touched nearly 105, with most currencies weakening against the greenback. Bankers say that even if the currency of India’s trading partner has depreciated along with the rupee, imports will still be costly as the billing is in dollars, and most importers do not have bargaining power.
On Friday, the US recorded 8.6% inflation in May, the fastest since December 1981. The trigger for the increase in prices was the Russian invasion of Ukraine and the shortage caused by China’s lockdown.
“The weakening of the currency is not exclusive to India, the rupee still outperformed. 8.6% US inflation has shaken the markets. The market is expecting a sharper and faster increase in interest rates to bring the real rates (interest adjusted for inflation) closer to neutral,” said Ashish Vaidyahead of treasure and market in DBS Bank.
According to Vaidya, higher interest rates could lead to a recession due to higher levels of global borrowings. While private borrowing is not a problem in India, higher government borrowing will result in lower interest rates. A slowdown in growth will halt inflation, but supply-side issues will keep prices under pressure until the conflict ends.
“Inflation may ease a bit, but it is not going away in a hurry. High fuel/coal transmission to electricity takes time. When this happens, it can trigger inflation of services,” Vaidya said.
An increase in the value of the dollar will make all imports expensive. This will increase inflation. While a weaker rupee is beneficial for exporters, the current macroeconomic environment will make it difficult for exporters to convert favorable exchange rates into demand.
Rating agency Moody’s recently said that the four rated companies together hold about US$2.5 billion in bonds maturing in the next 12 months till May 2023. Vedanta Resources That accounts for a large part of the upcoming maturities, the rating agency said.
One forex dealer said the markets were beginning to factor in a 75-basis-point-increase in interest rates in the United States.
Rupee opened weak, crossing the level of 77, foreign investors sold Indian shares. It closed at 78.28 in intraday trade before closing at 78.04, down 20 paise from Friday’s level of 77.84.
It was not just the rupee, many other currencies including the Japanese yen, the Australian dollar and the UK pound fell against the dollar. The dollar index touched nearly 105, with most currencies weakening against the greenback. Bankers say that even if the currency of India’s trading partner has depreciated along with the rupee, imports will still be costly as the billing is in dollars, and most importers do not have bargaining power.
On Friday, the US recorded 8.6% inflation in May, the fastest since December 1981. The trigger for the increase in prices was the Russian invasion of Ukraine and the shortage caused by China’s lockdown.
“The weakening of the currency is not exclusive to India, the rupee still outperformed. 8.6% US inflation has shaken the markets. The market is expecting a sharper and faster increase in interest rates to bring the real rates (interest adjusted for inflation) closer to neutral,” said Ashish Vaidyahead of treasure and market in DBS Bank.
According to Vaidya, higher interest rates could lead to a recession due to higher levels of global borrowings. While private borrowing is not a problem in India, higher government borrowing will result in lower interest rates. A slowdown in growth will halt inflation, but supply-side issues will keep prices under pressure until the conflict ends.
“Inflation may ease a bit, but it is not going away in a hurry. High fuel/coal transmission to electricity takes time. When this happens, it can trigger inflation of services,” Vaidya said.
An increase in the value of the dollar will make all imports expensive. This will increase inflation. While a weaker rupee is beneficial for exporters, the current macroeconomic environment will make it difficult for exporters to convert favorable exchange rates into demand.
Rating agency Moody’s recently said that the four rated companies together hold about US$2.5 billion in bonds maturing in the next 12 months till May 2023. Vedanta Resources That accounts for a large part of the upcoming maturities, the rating agency said.