CNA – The Indian rupee fell to over 80 per US dollar for the first time on record yesterday, as the greenback extended its rally and foreign capital outflows intensified.
The rupee was 80.0600 against the greenback soon after trading started, Bloomberg data showed.
High inflation and rising interest rates in the United States (US) coupled with fears of an impending recession in the world’s biggest economy have fuelled a broad dollar rally in recent weeks as investors turn increasingly risk-averse.
Tighter US monetary policy has exacerbated outflows from emerging markets such as India, where foreign investors have withdrawn a net USD30.8 billion in debt and equity this year.
Data released last week showed US consumer price inflation hit a fresh four-decade high in June, exceeding market forecasts and stoking expectations of another large Federal Reserve rate hike next week.
In a written statement to the Indian Parliament on Monday, Finance Minister Nirmala Sitharaman attributed the rupee’s sharp fall to external reasons.
“Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are the major reasons for the weakening of the Indian rupee against the US dollar,” she said.
At the same time, the Indian currency has strengthened against the British pound, the Japanese yen and the euro in 2022 so far, Sitharaman added.
But higher crude prices have resulted in a deteriorating trade balance in a country that imports 80 per cent of its oil needs.
India’s merchandise trade deficit widened to a record USD26.18 billion in June, official data showed last week, largely because of higher crude and coal import prices.
In its monthly economic review, the Ministry of Finance said that costlier imports could widen the current account deficit and cause the rupee to depreciate further.
Consumer price inflation in India, the world’s sixth-largest economy, cooled off slightly to 7.01 per cent in June after hitting an eight-year high of 7.79 per cent in April
But price rises have persisted well above the central bank’s two per cent to six per cent target range despite consecutive interest rate hikes in May and June.
The central bank has also sold more than USD34 billion of its foreign currency reserves in an effort to stabilise the rupee.