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Rupee hits new low on concerns over US interest rate hike

Rupee hits new low on concerns over US interest rate hike

The rupee on Wednesday hit a new record low against the US dollar amid rising concerns over global growth prospects and investors awaiting US Federal Reserve Chairman Jerome Powell’s two-day testimony before Congress. Weak global cues also weighed on the benchmark equity indices as it closed down over one per cent on Wednesday.

The BSE Sensex closed at 51,822.53, down 709.54 points or 1.35 per cent. The Nifty 50 closed at 15,413.30, down 225.50 points or 1.44 per cent.

The rupee on Tuesday settled at an all-time low of 78.38 against the US dollar at 78.07, even as investors expect Powell’s testimony to give further indications on further growth and inflation trajectory. Amid the ongoing Russian invasion of Ukraine, the US Federal Reserve hiked rates by an unprecedented 75 basis points. There are signs of further hike in rates.

Asian currencies under pressure

Dilip Parmar, Research Analyst, Research Analyst, HDFC Securities, said the rupee has hit an all-time low due to risk aversion, foreign fund outflows and weak Asian currencies following the fall in the Japanese yen.

“The impact of a weaker Japanese yen will add to pressure on Asian currencies and indirectly affect the rupee. Major central banks around the world are in a rush to curb slowing demand and inflation, which could lead to slow growth or even recession in developed countries,” he said.

BofA Securities has revised its estimates for the rupee and expects it to fall to 81 against the US dollar by the end of this year as against its earlier estimate of 79 per US dollar by December this year. It has also revised its year-end Nifty target and expects it to settle at 14,500.

“We believe that the risk is still skewed towards further depreciation for the rupee as the fundamental outlook has deteriorated mainly on account of higher oil and other commodities. We have revised our forecast for the end of 2022 to the current one. 79 to Rs 81 per USD,” BofA said on Wednesday. It attributed the widening current account deficit, lack of interest from debt investors as some of the key reasons for this.

The Reserve Bank of India appears to be intervening in the money market to protect the rupee.

“It appears that RBI has intervened in the foreign exchange market when the rupee was trading at a low of 78.38 against the US dollar, where 78.50 is the threshold mark that RBI is defending for the rupee. Further, the local unit of RBI Interventions are likely to continue to contain the massive depreciation of the USD.This is evident from the fact that forex reserves have fallen from a high of around $642 billion and the rupee has not depreciated as much as the domestic markets YTD As seen from here,” said Sugandha Sachdeva, Vice President – Commodity & Currency Research, Religare Broking Ltd.

raw pillow

Crude oil prices have recovered from the recent highs and are providing substantial support to the domestic currency. Brent crude futures, the global oil benchmark, have settled more than 13 per cent at $107.82 per barrel from a recent high of $125.19 per barrel, he said.

In the equity market, breadth remained weak as 2,081 shares declined against 1,250 shares on the BSE. Shrikant Chauhan, Head of Equity Research (Retail), Kotak Securities Ltd., said, “Markets once again turned into a downtrend as panicked investors were taking cues from the early fall in European indices and weakness in other Asian gauges. Particularly in equities. Metals, power and realty stocks. The market is currently in a very fragile position as any sign of weakness is prompting traders to exit the stock.

Meanwhile, the RBI on Wednesday said the current account balance posted a deficit of 1.2 per cent of GDP in 2021-22, as against a surplus of 0.9 per cent in 2020-21, as the trade deficit stood at 102.2 billion a year ago. dollars to $ 189.5 billion. ,

Published on

22 June 2022

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Rupee hits new low on concerns over US interest rate hike

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