Indian rupee hits new all-time low

Wednesday 11th May 2022 06:56 EDT

The Indian rupee breached the 77-level for the first time to hit a new low of 77.53 against the US dollar, raising concerns that a new front has opened up for the economy in the battle against inflation. If the rupee continues to weaken, it will add to inflation as all imports become costlier, and it will also make overseas education and international travel expensive.

On Monday, the rupee opened weak at 77.17, tracking weakness in Asian currencies, which corrected in light of depreciating Chinese Yuan. The domestic unit fell to a lifetime low of 77. 53 against US dollar before recovering to close at 77.46 on suspected RBI intervention. The greenback posted record gains after last week’s 50 basis points rate hike by US Federal Reserve, resulting in the Dollar Index, which tracks the greenback’s performance against a basket of currencies, hitting a 20-year high.

RBI not expected to intervene

“Despite high crude prices due to rising import bill, the external situation is under control. With RBI holding around $600 billion in forex reserves and $65 billion in forwards, India is in a comfortable position,” said Ashhish Vaidya, head of treasury and markets at DBS Bank. “I do not see the situation as grim, as the pressure on the current account because of high commodity prices can be well managed thanks to the comfortable reserves position. The more-than-expected tightening by the US Fed and the continued Russia-Ukraine standoff are putting pressure on the rupee and the entire emerging market space,” Vaidya added.
India is hit worse than other emerging economies because of its large oil import bill. The central bank also appears to be letting the domestic currency slip a little. The statement that the RBI will build up its reserves is seen as an indicator that it will not use up reserves to support the currency.

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