The rupee hit a new all-time low in early Monday, trading over 77.40 per dollar, driven by investor preference for safety as lockdowns in China, war on Europe’s edge and fears of higher interest rates hit a low. sent a shock of panic. Market.
On Friday, the Indian currency ended near its all-time low of 77.05 in March, weakening sharply today and trading at 77.42 per dollar, according to the latest quotes from PTI and Reuters.
Flight-to-safety trades have pushed the dollar’s strength, raising bids for the greenback since Russia invaded Ukraine in late February, fueled by fears of supply disruptions due to runaway inflation and higher global markets. Interest rates rose, leading to the next recession.
The dollar edged closer to its two-decade high, with the Federal Reserve raising its benchmark funds rate by 50 basis points and strong jobs data on Friday with a fifth straight week of gains on bets on bigger hikes.
The futures market is pricing in a 75 per cent probability of a 75 basis-point lift-off in June and a 200 basis point increase this year.
US inflation data this week and several Fed policymakers set to speak, as Russia-Ukraine shows no signs of losing its third month, boosted hopes of a good bid for the dollar.
Net capital outflows have not helped the Indian currency, with foreign investors pulling out over Rs 6,400 crore from the Indian equity market in the first four trading sessions in May and the remaining net sellers in the seven months to April 2022.
International crude oil prices rose sharply for the third month and traded above $100 on an average due to supply disruptions from the Russo-Ukraine war, weighing on the Indian currency.
A rising trade bill as the country imports 85 percent of its oil needs, a firmer dollar, rising crude prices, rising inflation and expected tighter monetary policy has stunned investors.
RBI raised its key interest rates in an emergency meeting last week, but inflation risks are rising despite fears of a slowdown in economic growth activity.
Vijay Singhania, chairman, TradeSmart, said, “With central banks across the world pressing the panic button and increasing interest rates. Foreign investors are continuing to sell.”
The expected interest rate differential dynamic and flight-to-safety trades point to a gloomy mood, despite RBI raising rates.
“Against a backdrop of declining Chinese and European activity, new plans for Russian energy sanctions and supply-side pressures came a series of hawkish communications,” Barclays analysts warned.
“This creates the bleak prospect of persistent inflation forcing central banks to raise rates despite increasingly slow growth.”
Indian stock markets also started May on a weak note after falling more than 2 per cent in April. With inflation data for April and international developments not very attractive, broader investor sentiment points to further downside.
“We are victims of a time when the rupee is going to its all-time low for several reasons. To describe a few points- a strong USD, weak Asian currencies, rebound in oil prices, Russia-Ukraine war. , FII outflows, and surprise growth by RBI to tackle inflation could be the key reasons,” said CR Forex Advisors.
“Friday’s job report boosted US yields and thus DXY (dollar index). Going forward, RBI’s intent will be closely monitored,” CR Forex Advisors said.