Rupee hits a new low on worries over hike in US interest rates

Rupee hits a new low on worries over hike in US interest rates

Subject: Economy

Section: External sector

• The rupee hit a fresh record low of 78.38 against the dollar on Wednesday amidst growing concerns over global growth prospects.
• The weak global cues also hit benchmark equity indices as it closed over one per cent lower on Wednesday.
• The BSE Sensex closed at 51,822.53, down 709.54 points or 1.35 per cent.
• The Nifty 50 closed at 15,413.30, down 225.50 points or 1.44 per cent.
• Amidst the ongoing Russian invasion of Ukraine, the US Federal Reserve had hiked rates by an unprecedented 75 basis points. There are indications of further increase in rates.
• World over, major central banks are turning hawkish to curb inflation which could result in slower growth or even recession in developed nations.
• The risks are still skewed towards more depreciation for the rupee as the fundamental outlook has deteriorated further, primarily due to higher oil and other commodities.
• The Reserve Bank of India is seen to have intervened in the currency market to defend the rupee.
• Going forward too, the RBI is likely to continue intervening to curb the steep depreciation of the local unit.
• This is evident from the fact that the forex reserves have come down from the highs of around $642 billion and the rupee has not depreciated as much as the extent of outflows seen from the domestic markets YTD.
• Crude oil prices have corrected from the recent highs and are providing a lot of cushion to the domestic currency.
• The current account balance recorded a deficit of 1.2 percent of the GDP in 2021-22 as against a surplus of 0.9 per cent in 2020-21 as the trade deficit widened to $189.5 billion from $102.2 billion a year ago.