The rupee collapsed to a new record low on Friday, weakening sharply beyond 81 per dollar for the first time ever as the greenback towered near a two-decade high.
PTI reported that the rupee fell 39 paise to an all-time low of 81.18 against the US dollar in early trade after closing at its weakest level ever on Thursday.
Bloomberg quoted the domestic currency last changing hands at 81.1387 per dollar after opening at 81.0612, compared to its record low close of 80.8688 in the previous session.
According to dealers quoted by Reuters, the lack of Reserve Bank of India’s (RBI) active intervention and the Federal Reserve’s (Fed) extremely hawkish view on interest rates, the local unit experienced its biggest single session percentage loss on Thursday since the Ukraine crisis began late in February.
The rupee had accelerated its drop in the final hour of trading on Thursday, closing at its weakest level ever.
“Just based on yesterday’s momentum, the pair (USD/INR) will get to 81 in early trades,” a currency spot dealer at a Mumbai-based bank has told Reuters ahead of the markets open.
“You can expect more importer activity today, and speculators will once again test the RBI, added the dealer.”
The rupee, after a period of outperformance, was among the biggest losers among Asian peers on Thursday.
On Thursday RBI was conspicuous by its absence from the spot market as the rupee fell by 1 per cent possibly as it wanted the rupee to do the catching up, Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors, told PTI.
“All major events are over for this month as we await RBI’s MPC to give its verdict on September 30, 2022,” he added.
A Reuters survey showed the RBI was set to hike rates again, but economists were split on by how much the central bank will raise.
Interest rates are substantially rising practically everywhere in the world, with hikes this week coming from countries including Britain, Sweden, Switzerland, and Norway.
But the Fed’s aggressive posturing has overshadowed others in the currency market as the greenback has benefited from safety flows and higher yields, while the euro has been hampered by the energy crisis and an impending conflict at its doorstep.
With policymakers predicting an additional 1.25 percentage points of tightening before year’s end, the Federal Reserve has sent its strongest message yet that it is willing to endure a recession as the necessary trade-off for regaining control of inflation.
“We see this new even-higher-for-longer rate path as associated with a substantially greater higher likelihood of a hard landing, and so not just unambiguously hawkish but unambiguously bad for risk,” Krishna Guha, Vice Chairman of Evercore ISI, told Bloomberg.
In response to the strengthening greenback, which has been supported by a very hawkish Fed and rising Treasury yields that have kept the dollar in demand, the euro, the Australian currency, and the New Zealand dollar were hovering near their recent lows on Friday.
In contrast, after Japanese officials intervened in foreign exchange markets for the first time since 1998, the yen was on course to post its first weekly gain in more than a month on Friday, while a surging dollar kept other currencies trapped near multi-year lows.
Despite efforts to prevent the depreciation, the offshore yuan declined even as the People’s Bank of China set the daily reference rate higher than anticipated for a 22nd day.