SEPTEMBER 23, 2022
- Rupee tumbles to its worst all-time low of 81.27 against the US dollar.
- The rupee was one of many global currencies that depreciated sharply after the hawkish commentary from the US Fed monetary policy meeting came in.
- The rupee was amongst the worst performing currencies against the dollar.
- Indian equity markets also fell in tandem with the weak rupee on Friday
- Sensex slipped over 1,000 points, or almost 2%, to 58,098.
Indian rupee on Friday fell to a low of 81.27 against the US dollar in early trade on the back of monetary policy tightening by central banks and on concerns about India’s record trade deficit.
The rupee was one of many global currencies that depreciated sharply after the hawkish commentary from the US Fed monetary policy meeting came in on September 21.
Prior to the Fed meeting, the rupee was one of the best performing currencies.
“The overall stance of the Fed was much more hawkish than expected which explains the market movement since. Stock indices slid, global yields rose and currencies have declined since,” said Aditi Gupta, economist at Bank of Baroda in a report.
The rupee was amongst the worst performing currencies against the dollar.
| Currencies | Daily % change |
| Korean Won | -1.2% |
| Indian Rupee | -1.1% |
| Philippine peso | -0.8% |
| Thai Baht | -0.6% |
| Taiwan dollar | -0.5% |
| Chinese Yuan | -0.4% |
| Malaysian Ringgit | -0.3% |
| Argentine Peso | -0.2% |
| Canadian Dollar | -0.2% |
| Indonesian Rupiah | -0.1% |
| Singapore Dollar | -0.1% |
| Pound sterling | -0.1% |
| New Zealand Dollar | -0.1% |
| Turkish lira | -0.1% |
(Source: Bloomberg, Bank of Baroda, Data as of 22 Sep 2022)
Currencies of Australia, Mexico, South Africa, Brazil and Japan appreciated against the US dollar.
On Friday, most currencies fell against the dollar as the US Federal Reserve signalled more interest rate hikes ahead, after raising interest rates by 75 basis points on September 21. The Federal Reserve Chair Jerome Powell hiked interest rates for the third time in a row.
“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” said Powell.
Rupee may fall further in the absence of RBI intervention “The Dollar Index may continue with its positive bias as the US Fed decided to raise interest rate by 75 bps, for a third consecutive month and signalled that it would continue to lift rates this year at a most rapid pace to combat inflation, which is running hot,” said a report by ICICIdirect Research.
Analysts believe only RBI’s intervention in the forex market can keep the rupee stable.
Indian equity markets also fell in tandem with the weak rupee. Sensex slipped over 1,000 points, or almost 2%, to 58,098.
“US$INR as long as it sustains above 79.00 it is likely to depreciate till 81.50 in the coming month amid strong dollar and concern over widening of the trade deficit. However, possible RBI intervention in the forex market to curb volatility may prevent sharp rupee depreciation,” added the report.
India’s trade deficit widened to $27.98 billion in August, according to data from the Commerce and Industry Ministry last week. Imports rose by 37.28% to $61.9 billion in August 2022.
Amid a strong dollar and continued weakness in other currencies, it seems likely that the RBI may not be as aggressive as in the past to curb the decline in the exchange rate, said Bank of Baroda’s Gupta.
“Hence, we may see the rupee depreciating further, and a move closer to 82/$ cannot be ruled out. Everything depends on what the RBI does and absence of active intervention will be interpreted as the present range around 81/$ being acceptable,” said Gupta in a report.
