Indian rupee falls to new low on Fed action, inflation fears

Indian rupee falls to new low on Fed action, inflation fears

Indian rupee falls to new low on Fed action, inflation fears

Indian rupee falls to new low on Fed action, inflation fears

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On Monday, the Indian rupee hit an all-time low against the US dollar, as US monetary policy tightened roiled markets and foreign investors continued to flee Indian stocks.

The rupee has been battered by rising oil prices and a strengthening US currency, with the Reserve Bank of India’s (RBI) unexpected rate hike last week doing little to prevent capital outflows.

The rupee plummeted to 77.56 versus the US dollar on Monday, breaking the previous record low of 76.98 set in March.

The drop occurred as Indian equities on the benchmark Sensex and Nifty50 indices lost ground for a fourth day on Monday, falling more than 1% apiece before recovering later in the day.

Banks, metals, and oil and gas stocks declined the most, with market heavyweight, the conglomerate Reliance, losing more than 3.0 percent following its quarterly results reported late on Friday.

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Foreign investors have withdrawn a net 1.34 trillion rupees ($17.3 billion) from Indian equities so far this year, stock exchange data showed.

As foreign funds are increasingly risk-averse, the turmoil in Ukraine and the revival of Covid-19 restrictions in China have worsened outflows from emerging economies like India.

Concerns about inflation, fueled by rising commodity costs, have dampened morale in Asia’s third-largest economy, which imports more than 80% of its oil.

In March, India’s consumer price inflation touched a 17-month high of 6.95 percent year-on-year, and economists predict data later this week to show that rate going above 7% in April.

The US Federal Reserve raised key lending rates by half a percentage point last week but refrained from announcing additional extreme steps.

“After an unscheduled rate hike by the Reserve Bank of India, if India’s inflation moves higher than 7.0 percent… the pressure will be on for the RBI to act again,” forex firm OANDA’s Jeffrey Halley said in a note.

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“That may give some strength to the rupee but is unlikely to be bullish for local equities.”

India’s forex reserves declined for an eighth consecutive week, slipping below $600 billion in the week ending April 29 as the central bank sold foreign currency in an effort to stabilise the rupee.

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