The rupee is just shy of touching a fresh record low of 82, with the domestic currency falling 40 paise to hit an all-time low of 81.94 against the US dollar in early trade.
The fall in the Indian currency was seen after the US White House said the U.S. dollar was strong as ever and downplayed the spillover effects. The US Federal Reserve's "aggressive" policy stance to curb inflation also helped the greenback gain more strength against other weaker economies. The rupee has already depreciated 9% against the US dollar in 2022 so far.
The rupee opened at 81.7, up from its previous close of 81.57 against the US dollar. It went on to touch 81.94 and settled at 81.89. If it touches 82, the rupee will be a new low against the dollar. The US dollar has gained strength over other currencies as well, with Euro down 0.28% against the greenback and the British pound down 0.44%.
Consistent strengthening of the US dollar against the currencies of developing economies means they need to raise key interest rates further. In Asian trading, the US dollar index reached a new high of 114.68 and the US 10-year Treasury bond yield touched 4%, the first since 2010.
The U.S. Federal Reserve raised the key policy rate by 75 basis points (bps) for the third straight time last week. The Fed vowed to continue with its "aggressive" policy stance to curb inflation. It also expects the policy rate to rise to 4.4% by year's end and 4.6% by the end of 2023.
The Reserve Bank of India’s monetary policy committee (MPC) is also expected to hike the key policy rate by another 50 basis points to 5.9%. RBI governor Shaktikanta Das-led six-member monetary policy committee (MPC) is meeting during September 28-30.
The Bank of England, too, has raised key interest rates by 50 basis points to 2.25% from 1.75%. It is the 7th consecutive hike by the BoE, raising the key policy rates to their highest level since 2008. Barring Japan's central bank, which has maintained an ultra-loose monetary policy, countries like Switzerland, Norway, South Africa, UAE, Saudi Arabia, Hong Kong, Indonesia and the Philippines have raised key interest rates.
SBI's research wing says a 50 basis points repo rate hike is imminent, and that the peak repo rate in the cycle is expected to be 6.25%. "A final rate hike of 35 bps is expected in December policy,” says Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.
Meanwhile, the domestic equity markets opened lower today but are trading flat currently, with BSE benchmark Sensex at 57,169.30, up 0.11%, while Nifty at 16,997.05, 0.05% down. In the past week, Sensex has fallen by 3.73%, while Nifty is down 3.77%.