Soaring US inflation has worked its way to pull down the Indian rupee to the brink of 80 levels against the dollar as fears grow that an aggressive US Federal Reserve will go for a 100-basis-points rate hike to tame prices that will lead to a flight of dollars and pull down the Indian currency.
On Thursday, the rupee came close to the 80- mark when it touched a lifetime low of 79.92 in intra-day trades as the dollar continued its unabated run against the Indian currency.
It later settled at 79.87, a fall of 24 paise. Indian stocks also reacted negatively to US inflation data, with the benchmark indices Sensex and Nifty giving up their early gains to close lower for a fourth straight session on Thursday.
“Tracking weak cues in global markets, Indian indices gave away their initial gains amid concerns over higher-than-expected US inflation data.
Investors are increasingly expecting the Fed to carry out a minimum 75bps rate hike this month in order to combat high inflation,” said Vinod Nair, head of research at Geojit Financial Services.
Forex circles are almost certain that the rupee will fall below 80 — even as early as Friday — and drop to around 80.50 in the near term.
The dreadful forecast for the domestic currency comes with the US inflation print reading 9.1 per cent in June against 8.8 per cent estimated by analysts. This has raised the possibility of the US Federal Reserve aggressively raising interest rates.
Citigroup economists led by Andrew Hollenhorst, said in a note that the Fed could raise interest rates by 100 basis point in its meeting later this month. "You have to put 100 on the table for July. Everybody should be quite cautious about calling peak inflation — a few months ago the peak was supposed to be 8.3 per cent,’’ a Bloomberg report quoted him as saying.
Commenting on the rupee’s fall Anindya Banerjee, VP, currency derivatives and interest rate derivatives at Kotak Securities, said after the US CPI number, the odds of a 100 basis point rate hike has increased significantly.
Pointing out that if the dollar rallies against other units, it could see the rupee diving towards even 80.50.
For now, he sees the rupee at 79.60-80.40 in the spot markets.
