The Indian rupee is expected to fall further after reaching a record low against the US dollar on Thursday, as the US Federal Reserve hinted at more aggressive rate hikes to combat inflation. The rupee opened at a record low of 80.2850 per US dollar, down from 79.9750 the day before.
The Fed raised interest rates by 75 basis points, as expected. More importantly, it hinted that more hikes were on the way and that rates would remain high until 2024. Asian currencies began the day weaker, with the Chinese yuan falling below 7.10 per dollar.
“After the hawkish Fed Reserve commentary, the rupee is (set to fall)”, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
“The intervention from the central bank will remain crucial and they are expected to be present through the day. However, they may allow a closing for the pair above 80 today.”
If the RBI decides to take a step back, Samir Lodha, managing director at QuantArt Market Solutions, believes the rupee will suffer further losses.
“Once RBI allows INR to trade beyond 80 on a consistent basis, I expect rupee to head towards 82.0 in a couple of months on account of the trade deficit and due to global recession and money supply tightening,” Lodha said. It is possible that “rupee will depreciate further with RBI intervention to control it whenever required,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfor Fincap.
However, any potential RBI intervention may be less aggressive this time, according to Arnob Biswas, head of FX at SMC Global Securities.
“Given the Fed’s hawkish stance, the RBI may not be aggressive. Furthermore, a significant drop in net liquidity in the system may justify doing so “Biswas stated.
According to Dilip Parmar, research analyst at HDFC Securities, “even if the RBI steps in, it will only be a temporary support and will not change the direction.”
Meanwhile, Kunal Sodhani, vice president of Sinhan Bank’s global trading centre, stated “Stop losses may be triggered by a large number of option sellers. Needless to say, it will be interesting to see how the RBI responds from here “Sodhani explained.