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Indian rupee falls to new low on Fed action, inflation fears

MUMBAI (AFP) – The Indian rupee plunged to an all-time low against the greenback yesterday, as United States (US) monetary policy tightening roiled sentiment and foreign investors continued to dump domestic stocks.

Rising oil prices and a strengthening US dollar have weighed heavy on the rupee with a surprise rate hike by the Reserve Bank of India (RBI) last week doing little to stem capital outflows.

The rupee fell past its previous record low of 76.98 against the US dollar in March to 77.56 yesterday.

The fall came as Indian stocks on the benchmark Sensex and Nifty50 indices extended losses for a fourth day, falling more than one per cent each yesterday before recovering ground later in the day.

Banks, metals and oil and gas stocks declined the most, with market heavyweight, the conglomerate Reliance, losing more than three per cent following its quarterly results reported late on Friday.

A vegetable seller counts rupee notes in Mumbai. PHOTO: AFP

Foreign investors have withdrawn a net INR1.34 trillion (USD17.3 billion) from Indian equities so far this year, stock exchange data showed.

The conflict in Ukraine and resurgence of COVID-19 restrictions in China have exacerbated outflows from emerging markets like India as foreign funds turn risk-averse.

Inflation worries on the back of rising commodity prices have also soured sentiment in Asia’s third-largest economy, which imports more than 80 per cent of its oil needs.

Consumer price inflation in India hit a 17-month high of 6.95 per cent year-on-year in March, and economists expect data to be released later this week to show that number rising beyond seven per cent in April.

The US Federal Reserve last week hiked the key lending rates by half a percentage point, but also held off on signalling more aggressive measures.

“After an unscheduled rate hike by the RBI, if India’s inflation moves higher than seven per cent… the pressure will be on for the RBI to act again,” forex firm OANDA’s Jeffrey Halley said in a note.