The rupee on Thursday slipped to record lows against the dollar, after the US Federal Reserve raised benchmark rates by 75 basis points and sounded more hawkish than anticipated. The rupee plunged nearly 90 paise, closing the session at 80.87 compared with 79.98 on Wednesday, the single-biggest drop for the Indian currency since February 24. Apart from the prospect of more rate hikes, the escalating geopolitical risks also weighed on the sentiment.
Meanwhile, bonds sold off, sending the yield on the benchmark bond to 7.312%, up 8 basis points from its previous close of 7.234%. These levels were last seen on August 8.
The Reserve Bank of India (RBI) will meet to review monetary policy from September 28-30.
Jayesh Mehta, country treasurer, Bank of America, said that while the uncertainty in global markets and the consequent volatility could keep the rupee above 80 levels, closer to March it was likely to settle down at below 80 levels. It was not immediately clear whether RBI had intervened in the currency markets.
Most Asian currencies also depreciated against the greenback.
The dollex was trading at 110.65 on Thursday evening (IST) after having gone up to 111 levels in earlier trades. According to Reuters, the gauge had hit a fresh 20-year high of 111.80 at one point but came off when the Japanese yen appreciated after authorities intervened in the foreign exchange market for the first time since 1998. Currency experts do not rule out more strength for the gauge in the coming months.
While the 75 bps hike in the Fed funds rate was in line with expectations, the hawkish commentary came as a surprise. The Fed’s dot plot indicates rates will reach 4.4% by the end of this year, implying a cumulative increase of 125 basis points over the remaining two meetings in November and December. Economists expect rates could move up to 4.6% by end-2023.