Rupee hits all-time low of 85.12.
Following the US Federal Reserve’s recent decision, the dollar experienced a significant rally, strengthening against multiple currencies, including the Indian rupee. The decision to maintain or adjust interest rates by the Federal Reserve often has a profound impact on global currency markets. As a result of the Fed’s actions, the dollar gained momentum, reaching new highs. The continued strength of the dollar has raised concerns in emerging markets like India, impacting trade and inflationary pressures.
Indian Rupee Hits Record Low of 85.12 Against US Dollar Amid Federal Reserve’s Hawkish Stance
New Delhi: The Indian rupee dropped 18 paise to reach an all-time low of 85.12 against the US dollar on the National Stock Exchange (NSE) on Thursday, following the US Federal Reserve’s hawkish commentary on its outlook for interest rate cuts. This decline marks a significant setback for the rupee, which had already been facing pressure due to global economic uncertainties.
new stance indicated that it is less likely to reduce interest rates as aggressively in the coming years, particularly for 2025. In fact, the FOMC halved the number of rate cuts that had previously been expected for the following year, signaling that interest rates may remain higher for longer to curb inflation.
Impact of the Federal Reserve’s Decision on Global Markets
The Federal Reserve’s decision had an immediate and significant impact on global financial markets, especially the foreign exchange market. As the US Fed’s outlook strengthened the dollar, there was a notable rally in the greenback, with the dollar index crossing the 108 mark, its highest in several years. This robust performance of the dollar was fueled by expectations that the US economy will continue to show resilience, even as inflationary pressures persist.
The Indian rupee, along with several other emerging market currencies, faced downward pressure as a result of the dollar’s strength. Investors often seek safe-haven assets like the US dollar during times of global economic uncertainty or when there is an indication that the US Fed will maintain a higher interest rate environment. The hawkish stance on rate cuts intensified concerns in markets already grappling with high inflation and geopolitical tensions.
As a result, the Indian rupee fell to its weakest point in history, reaching 85.12 against the US dollar. The ongoing depreciation of the rupee has raised concerns about inflationary pressures, particularly in sectors reliant on imported goods, such as energy and consumer goods. A weaker rupee could lead to higher import costs, which may, in turn, increase inflation within India.
Stock Market Response to the US Fed’s Decision
In addition to the currency market, the Indian stock market also reacted negatively to the US Fed’s hawkish stance. The Indian stock indices opened on Thursday with a sharp decline, as investors adjusted to the prospect of a stronger dollar and its potential impact on the global economy.
Meanwhile, the Nifty was also under pressure, trading at 23,966.15, marking a drop of 232.70 points, or 0.96 percent. The significant decline in both indices reflected concerns among investors about the broader economic implications of the Fed’s rate outlook and the strengthening dollar.
Indian investors, especially those involved in export-driven businesses, are closely watching these developments. While a stronger dollar may benefit Indian exporters by making their goods more competitive in international markets, the overall negative sentiment from the stock market’s reaction suggests a more cautious approach from investors.
Impact on Inflation and Trade Deficit
One of the primary concerns regarding the depreciation of the rupee is its potential effect on inflation. A weaker rupee raises the cost of imports, including oil, which is a significant concern for India, as it is heavily dependent on imported oil for energy needs. The rise in global oil prices, coupled with the weakening rupee, could exacerbate inflationary pressures, affecting household budgets and the overall cost of living.
Moreover, India’s trade deficit may also widen due to the increased cost of imports. A weaker currency means that it takes more rupees to buy the same amount of foreign goods, thus expanding the trade gap. While a weaker rupee might help Indian exporters by making their products more affordable on international markets, it could hurt the country’s importers, especially those dealing with essential commodities such as crude oil, electronics, and gold.
Government and RBI Response
In response to the currency depreciation and market fluctuations, the Indian government and the Reserve Bank of India (RBI) have been closely monitoring developments. While the government is likely to take steps to address the growing trade deficit, including promoting export-driven growth and possibly reducing reliance on imports, the RBI may intervene in
The RBI has also indicated that it will maintain its focus on ensuring price stability and economic growth, despite the challenges posed by a stronger dollar and rising inflation.
Global Outlook and Future Projections
Looking ahead, the global outlook remains uncertain. The US Fed’s decision to slow rate cuts signals a potentially prolonged period of high interest rates, which could continue to support the dollar and put pressure on emerging market currencies like the rupee. Moreover, global inflation, particularly energy prices, will continue to be a significant factor influencing both currency and stock market movements.
For India, the government’s efforts to manage inflation, encourage exports, and promote domestic growth will play a crucial role in navigating the effects of a strong dollar. However, the road ahead may remain bumpy, with uncertainties surrounding the global economy and its impact on the Indian market. Investors and policymakers alike will need to stay vigilant as the situation unfolds.