NEW DELHI: Rupee hit a new low on Friday against the US dollar. It fell to 81.23 a dollar before regaining some ground as the Reserve Bank of India (RBI) likely intervened, helping the local currency to close at 80.99 in the spot market.
This week the rupee fell 1.6%, mostly weighed down by the US Federal Reserve’s decision to hike interest rates by 75 basis points on Wednesday. Other central banks – Bank of England, Swiss National Bank – raising interest rates by 0.5% also had a rub-off effect on the Indian currency.
The recent fall – 1.6% in a week – in response to the US Fed rate hike has not given much confidence to economists and analysts. The monetary policy committee of the RBI may have to take note of the rupee’s fall when it sits from 28-30 September to decide the short-term interest rates.
“The recent downhill movement of the rupee following the Fed’s announcement has made the rupee one of the more unsatisfactory currencies based on the response to the dollar strengthening in the global market,” says Madan Sabnavis, chief economist, bank of Baroda.
Bank of Baroda in its latest research report says rupee will most likely head towards 82 a dollar mark as the RBI may not be as aggressive as it was earlier in supporting the local currency given continued weakness in other currencies.
And while Rupee’s continuous fall against the US dollar made the headlines, it has nonetheless managed to remain stronger than other major Asian and European currencies. Rupee has dropped around 10% against the US dollar since the beginning of 2022. Compared to this, Japan’s Yen has shed 24%, UK pound has dropped 22% and Bangladesh’s currency has lost 20% since January this year. It has actually strengthened against major currencies like Pound Sterling (by 11%), Yen (12%) and Euro (6%).
Though this may not be of much consolation as depreciation of the rupee is likely to further worsen India’s trade deficit – with imports getting costlier, neutralising any benefits to exports (due to weak rupee).
