MUMBAI: The rupee plunged past the sensitive 85-mark for the first time ever and closed 13 paise down at 85.07, after hitting a low of 85.085 intra-day on Thursday as the US Federal Reserve scaled back its rate cut projections for 2025, battering all Asian currencies and leading to a rally in the greenback.
During the opening trade, the rupee hit a low of 85.085 against the dollar before closing at 85.07. On Wednesday, the unit had closed at 84.97 to the dollar.
This day last year, the rupee was at 83.02 and on October 10 it was trading above the 84-mark.
Traders said the Reserve Bank has sold dollars to stem the slide helping the rupee fare better than most of its Asian peers, which declined by as much as 1.2 per cent. Against this, the rupee lost just 13 paise.
Wednesday, while lopping 25 bps off the Federal fund rates to 4.25-4.50 per cent, the world’s most powerful central bank said given the sticky inflation and a strong economy along with hiring, they will not cut the rates as much as earlier hinted but will have just two cuts or 50 bps in two instalments. Earlier chairman Jerome Powell had hinted at four rate cuts of 25 bps each in 2025. Since September the Fed had lopped off 100 bps—50 bps in September and 25 bps each in November and Wednesday.
The market took this as a hawkish shift in its dot plot strategy and US markets slumped more than 3 per cent Wednesday, which extended to Asian and European markets as well as Dalal Street with BSE and NSE indices sliding more than 1 per cent each.
The dollar index dipped below the 108 handles in Asia trading after rising to an over two-year high earlier in the day. US bond yields extended gains, with the 10-year treasury yield touching a peak of 4.54 per cent, the highest since May, according to American media reports.
Central banks across the emerging markets scrambled to defend their struggling currencies as the Korean won dropped to its weakest level in 15 years, while the Indonesian rupiah hit a four-month low.
HSFC Securities told TNIE that they expect the rupee to continue to remain under pressure and trade in a range and see the unit plunging by 50 paise more by end of March.
Other reasons for the pressure on the rupee are the poor set of marco data—seven-quarter low GDP growth in Q2 and a rising current account deficit due to a massive spike in imports led by gold. The looming tariff war that the US president-elect threatening its trade partners including India is also leading to the pressure, traders said, adding foreign funds continuing to sell domestic equities and debt are another pressure-point for the rupee.