as inflation in america Global supply chain disruptions and fiscal stimulus from governments have hit a 41-year high of 9.1 per cent in June. coronavirus In the pandemic, analysts India said that it may indicate US Federal Reserve To raise interest rates more aggressively, which, in turn, will encourage more foreign capital outflows from India, thus affecting further. Rupee And here the stock market.
Consumer prices in the US rose 9.1 percent year-on-year during June, driven by higher gas, food and rent prices. This is the biggest 12-month increase since 1981, and is up from a jump of 8.6 percent in May. On a monthly basis, prices rose 1.3 percent from May to June, another significant increase followed by a 1 percent increase in prices from April to May.
Vivek Iyer, Partner and Leader (Financial Services Risk) at Grant Thornton India, said, “Given the dollar’s global status as a reserve currency, every US macroeconomic indicator matters to the rest of the world and India is no exception. .. High US inflation means a tighter Fed policy resulting in higher interest rates there, causing the currency to depreciate for India.
He said a depreciating currency generates two policy responses for India – market intervention through dollar sales to manage currency volatility; and management of domestic liquidity and domestic interest rates to control inflation due to imports.
The Indian rupee on Thursday touched a record low for the fourth consecutive session. The local currency traded at a lifetime low of 79.71 (provisional) per US dollar as compared to its previous close of 79.63.
Sudarshan Motwani, Founder and CEO, BookMyForex.com said, “Higher inflation in the US will mean that the US Federal Reserve will increase its key interest rates, which will result in FPIs (foreign portfolio investors) pulling money from the Indian rupee. Also, speculators would be taking advantage of the current situation where RBI is waiting for dollar inflows due to its recent policy changes and hence probably not intervening for some time.
Motwani said that at present, the lack of corporate dollar inflows is putting the main pressure on the rupee. “There is a good chance of reversing the current depreciation of the rupee before the end of this month as that time frame is likely to see an influx of large corporate dollars.”
Foreign investors are withdrawing money from Indian markets since October 2021. He has withdrawn more than Rs 4,000 crore so far this month amid continued appreciation of the dollar and rising interest rates in the US. The net outflow of FPIs from equities has reached around Rs 2.21 lakh crore so far this year – the highest ever. Before that, he pulled out a net worth of Rs 52,987 crore for the entire 2008, the data showed.
Prashant Taapsee, vice president (research), Mehta Equities, said, “The US CPI inflation numbers, which hit a 41-year high of 9.1 per cent in June, certainly raise the prospects of a more drastic stance by the US Fed. meeting, which could further increase volatility in equities and other asset classes.”
He added that with FPI outflows showing no signs of pullback, one can expect volatility in currency markets as well.
Last month, the US Fed announced the most aggressive interest rate hike in nearly 30 years, raising the benchmark lending rate by 75 basis points as it battles rising inflation. It will meet later this month for the upcoming policy review. The US central bank has set a target of keeping inflation in the range of 2 percent.
Anindya Banerjee, Vice President (Currency Derivatives and Interest Rate Derivatives), Kotak Securities, said a hike in the US rate following the latest inflation data could further curtail FPI inflows and plans to raise corporate dollars, which would mean a lower dollar. may be supplied. And there is more possibility of depreciation of Rs.
“With US inflation hitting a 41-year high, the likelihood of a back-to-back 100 bps (basis point) hike by the Fed in July and September has increased. With negative spread between year and US 2-year is the widest since 2000,” Banerjee said.
Banerjee also said that aggressive rate hikes and the risk of recession are double negatives for the world economy, including the Indian economy. “As far as the economy is concerned, sectors that are associated with exporters may face heat when the global economy slows down. Also, sectors linked to the commodity cycle could see their earnings decline if commodity prices fall sharply due to the Fed and bearish risks.
ICICI Securities Chief Economist Prasenjit Basu said, “The US will be bound to swiftly reverse its major monetary policy error of the past 12 months. We expect the US fed funds rate to reach 3 per cent by the mid-September FOMC meeting.” The US recession is certain by the beginning of 2024.
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