Mumbai: The Indian rupee fell over 80 against the US dollar for the first time on record on Tuesday as the dollar extended its rally and inflows of foreign capital intensified. Bloomberg data showed the rupee hit 80.0600 against the US dollar in early trading, before paring losses due to suspected central bank intervention to close at 79.9487.
Rising inflation and rising interest rates in the United States, along with fears of an imminent recession in the world’s largest economy, have sent the dollar rallying broadly in recent weeks as investors become more risk-averse. Tightening of US monetary policy has exacerbated outflows from emerging markets such as India, where foreign investors pulled $31 billion from net debt and equities this year.
Data released last week showed that consumer price inflation in the United States reached a new four-decade high in June, outstripping market expectations and fueling expectations for a key Fed rate hike next week. In a written statement to the Indian Parliament on Monday, Finance Minister Nirmala Sitharaman attributed the sharp decline in the rupee to external causes.
“Global factors such as the conflict between Russia and Ukraine, high crude oil prices and tightening global financial conditions are the main reasons for the weakness of the Indian rupee against the US dollar,” he said. Sittraman added that at the same time, the Indian currency strengthened against the British pound, Japanese yen and the euro in 2022. But the rise in crude oil prices caused a deterioration in the trade balance in a country that imports 80% of its oil.
India’s merchandise trade deficit rose to a record $26.18 billion in June, according to official data that emerged last week, largely due to higher import prices for crude oil and coal. In its monthly economic review, the Ministry of Finance said that more expensive 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, slowed slightly to 7.01% in June after hitting an eight-year high of 7.79% in April.
But the rate increases remained well above the central bank’s target range of two to six percent, despite successive rate increases in May and June. The central bank also sold more than $34 billion of its foreign exchange reserves in a bid to stabilize the rupee. “The near-term outlook for the rupee will remain weak as it follows developments on the oil and gas front in international markets,” K Harihar, a forex expert, told AFP.
“The weakness will continue until the trade deficit figures decrease or capital inflows are faced,” he said, adding that the rupee could fall to 81 against the dollar without an agreement between Europe and Russia on gas supplies. The rupee’s move came on the heels of Russia’s Gazprom Europe’s announcement late Monday that it could not guarantee gas supplies after maintenance work on its Nord Stream pipeline. India’s benchmark Sensex closed up 0.45% on Tuesday. – France Press agency