The rupee hit an all-time low against the dollar, snapping a third consecutive session of record lows, and was well past 81.50 per dollar on Monday as it rallied sharply on fears of the greenback hitting multi-year highs against most major currencies. global recession from rising debt interest rates worldwide.
The rupee last touched 81.5038 per dollar after opening at a weakest 81.5225 against 80.9900 on Friday and hitting a record low of 81.5587, Bloomberg reported.
The local currency fell 38 paise to an all-time low of 81.47 against the US dollar in early trade, PTI reported.
“The panic was created by the dollar index, which witnessed strong buying as a strong hedge against the cycle of interest rate hikes and inflation. Unless there are positive triggers on inflation, the rupee will continue to bear down,” Vice President Jateen Trivedi – LKP told ANI Securities research analyst said.
“The next trigger for the rupee next week is the RBI policy which will give some respite to the rupee decline. The rupee range may be seen at 80.50-81.55 before the RBI policy,” he said.
The Reserve Bank of India is also set to raise rates later in the week, but by how much has divided policymakers.
India’s foreign exchange reserves have been steadily dwindling over the past few months due to RBI’s intervention in the market to protect the weakening rupee and the country’s trade settlement. Another potential explanation for the depreciation of the rupee is this depletion.
The Indian rupee will remain weaker as investors expect the US Fed to continue raising interest rates aggressively to cool inflation, Sriram Iyer, Principal Research Analyst at Reliance Securities, told PTI.
“The focus now shifts to the RBI meeting this week, whose decision will be taken on Friday. We expect the RBI to hike rates by 50 bps to cool stubbornly high inflation and prevent the currency from further weakening,” Mr Iyer added.
A rate hike in the United States and an aggressive policy stance by the Federal Reserve forced dozens of other countries to do so last week, underscoring the risks of a global economic slowdown, prompting an onslaught of brutal selling in global financial markets. dollar rally.
The dollar’s rally is also a reflection of investors increasing their safety bets as Asian markets risk renewed crisis-level stress as two of the region’s most important currencies crumble under an onslaught of relentless dollar strength – the yen and yuan.
The yuan and yen are falling due to a widening gap between the ultra-hawkish Federal Reserve and dovish policymakers in China and Japan.
The depreciation of the yuan (renminbi) and yen makes things worse for everyone and threatens the region’s reputation as a prime destination for risk investors. At the same time, other Asian countries rely heavily on their foreign exchange reserves to offset the impact of the dollar.
Vishnu Varathan, head of economics and strategy at Mizuho Bank, told Bloomberg: “The yen and the yen are big anchors, and their weak currencies are destabilizing for trade and investment in Asia.”
“We are already heading towards the stress levels of the global financial crisis in some aspects; then if the losses deepen, the next step will be the Asian financial crisis,” he said.
If the currencies of the region’s two largest economies depreciate, causing foreign investors to withdraw money from Asia, a full-blown crisis could emerge.
The reductions can lead to a vicious cycle of competitive devaluations, reduced demand and loss of consumer confidence.
“Currency risk is a bigger threat to Asian countries than interest rates,” Taimur Baig, chief economist at DBS Group in Singapore, told Bloomberg. “At the end of the day, all of Asia is an exporter, and we could see a 1997 or 1998 crackdown without massive collateral damage.”
Not only Asian currencies, but the rising dollar has pushed the British pound to a new lifetime low, and analysts are now calling for the dollar to be pegged to sterling.
The pound fell to a record low among major currencies on Monday, while the euro fell to a 20-year low of $0.9660 on rising risks of war in Ukraine before stabilizing at $0.9696.
Other currencies were also losers, with the U.S. dollar hitting a record high of $0.6510, its lowest level since mid-2020.
“It’s the royal US dollar – we’re seeing currencies under pressure across Asia,” Sian Fenner, chief Asia economist at Oxford Economics, told Bloomberg TV. “This adds to inflationary pressures and more central banks raising rates than we’ve seen historically.”