The rupee sank below the 85-mark to finish at a record low of 85.07 against the dollar and the Sensex plunged 965 points as the world markets were rattled by hawkish comments from the US Federal Reserve that indicated fewer interest rate cuts in 2025.
The US Federal Reserve cut its benchmark rate by 25 basis points late on Wednesday, while the Bank of England and the Bank of Japan kept their rates unchanged on Thursday.
Investors saw red ink as the benchmark Sensex slumped for the fourth consecutive session and ended below 80000. The 30-share gauge collapsed 964.15 points or 1.20 per cent to settle at 79218.05.
During intra-day trades, the index lost 1162.12 points to touch 79020.08. On the NSE, the broader Nifty plummeted 247.15 points or 1.02 per cent to sink below the 24000-mark at 23951.70.
For equities and the rupee, the jolt came after Fed chairman Jerome Powell indicated that there will be only two interest cuts in the next calendar year.
Ahead of the US central bank’s decision, it was believed that it could reduce borrowing costs on three or four occasions in 2025.
“As we think about further cuts, we’re going to be looking for progress on inflation’ We have been moving sideways on 12-month inflation,’’ he said at a press conference.
His comments sparked a meltdown globally with key indices in Europe trading lower 1.26 per cent at the time of this report. In other markets the selloff saw South Korea’s Kospi falling the most by 1.95 per cent
In Japan, its central bank held interest rates but Bank of Japan Governor Kazuo Ueda said it will continue raising interest rates if the economy performs in line with its forecast. His comments and the central bank’s move saw the Nikkei falling 0.69 per cent.
The Bank of England also kept interest rates unchanged on Thursday and warned of “heightened uncertainty" after inflation moved further above target.
Market circles said domestic stocks came under pressure as FIIs remained on the sell mode even as there were apprehensions that a slower Fed in 2025 would lead to discretionary spending taking a hit thereby affecting IT companies.
"The US Fed implemented a 25 basis points rate cut as expected but indicated that it may pursue fewer cuts in 2025 than markets had anticipated, triggering a sharp sell-off in equities… Overall, we expect Indian markets to remain subdued and track global cues in this volatile environment,’’ Siddhartha Khemka, head - research, Wealth Management, Motilal Oswal Financial Services, said.
At the forex markets, the Fed comments led to the dollar index (DXY-which measures its strength against a basket of six global currencies) firming to 108.03 on Wednesday. This put the rupee under pressure which opened below the 85 level at 85.04 against the previous close of 84.95. During intra-day trades, the local unit hit an all-time low of 85.08. It later settled at 85.07 a new record low.
"We expect the rupee to trade with a negative bias on global equities following a hawkish Fed and a strong dollar. Concerns over slowdown in the economy may further weigh on the rupee," said Anuj Choudhary — research analyst at Mirae Asset Sharekhan.
US growth
The American economy grew at a healthy 3.1 per cent annual clip from July through September, propelled by vigorous consumer spending and an uptick in exports, the government said in an upgrade to its previous estimate.
The US economy grew 3 per cent in the April-July quarter, reports AP.
