The rupee crashed to a new record low against a rampant greenback on Thursday, with 81 per dollar now just a hop, skip and jump away, driven by a deep rout in global risk assets after the Federal Reserve warned aggressive policy path even at the cost of a recession to fight elevated inflation.
The currency registered its biggest single day fall in six months on Thursday.
Bloomberg quoted the domestic currency last changing hands at 80.8688 per dollar, down nearly 90 paise from the previous close of 79.9788.
PTI said the rupee tanked 99 paise to close provisionally at a new all-time low of 80.95 against the US dollar.
That even as the dollar pulled back from a two-decade high, although elevated US bond yields and hawkish remarks on future rate hikes from the Federal Reserve pressured risk assets.
“While the Fed has maintained an hawkish stance, the steady pace of rate hikes and the slight improvement in the inflation situation shows that there is reduced pressure on the central bank to act aggressively,” said Ravindra Rao, Head Commodity Research at Kotak Securities.
“We may see some correction in the US dollar once the central bank acknowledges improvement in inflation situation. Another challenge for the US dollar could be aggressive tightening by other central banks to control inflation as well as possible central bank interventions to support their currencies,” he added.
Investors before today were not willing to test the Reserve Bank of India’ resolve at defending the rupee from falling far below 80 per dollar, but the breach of that level suggests more pain for policymakers now.
The Indian currency is not very far away from hitting 81 per dollar for the first time ever.
While the rupee’s fall this year has been dramatic and significant, the RBI has drawn down the country’s forex reserves to defend against the kind of crash the rupee experienced on Thursday.
The Indian central bank has spent reserves to the tune of over $80 billion since Russia invaded Ukraine late in February, with the domestic currency more or less standing its ground compared to its emerging market peers and some developed market currencies.
On the other hand, after Japan’s first intervention since 1998 stabilised the yen’s 20 per cent decline versus the dollar this year, with the currency gaining some ground.
But the Bank of Japan, in contrast to the Fed, resolutely adhered to its ultra-low interest rate policy on Thursday, driving the yen lower against the US dollar.
Russia’s intensification of its conflict with Ukraine and tensions between Beijing and Taiwan further hurt sentiment, boosting safe-haven flows and a rout in global financial markets.