The Indian rupee fell 39 paise to a fresh all-time low of 82.69 against the US dollar in opening trade on Monday as surging global crude oil prices weighed on the local currency.
The rupee opened at 82.68 against the greenback at the interbank foreign exchange. It then dropped to 82.69, registering a fall of 39 paise over its previous close.
The free fall of the rupee comes amid a selloff in domestic equity markets. The BSE Sensex fell over 800 points while the Nifty 50 dropped 1.25% in the intraday trade.
Fears of aggressive rate hikes by the US Federal Reserve spooked investors. As the US unemployment rate dropped to 3.5%, analysts said the Fed will have to continue raising interest rates longer than the markets had discounted.
While announcing the monetary policy committee's repo rate hike last month, Reserve Bank of India (RBI) governor Shaktikanta Das said that the central bank doesn't have any fixed exchange rate amid the depreciating rupee against the US dollar, and its market intervention is to curb excessive volatility.
"The rupee is a freely floating currency and its exchange rate is market-determined. Second, the RBI does not have any fixed exchange rate in mind. It intervenes in the market to curb excessive volatility and anchor expectations," Das had said, adding that the rupee has depreciated by 7.4% against the US dollar this year – faring much better than several reserve currencies as well as many of its emerging market economies and Asian peers.
The recent depreciation of the rupee vis-à-vis the US dollar contributed to higher inflation in India, according to the World Bank, which has downgraded India's gross domestic product (GDP) growth projection to 6.5% for the financial year 2022-23.
The steep depreciation of the rupee seen towards the end of the month due to interest rate hikes in the US presents additional challenges to the Indian economy, said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. Currency instability poses renewed inflation worries as imported items become more costly, and undoubtedly means that the RBI will continue hiking interest rates to protect the rupee and contain price pressures, Lima added.
Foreign portfolio investors (FPIs) have pulled out a record $25 billion from the Indian stock markets over the trailing 12 months, capping the year-long sale by dumping equities worth ₹7,624 crore in September, Fortune India reported earlier this month.
Meanwhile, the Reserve Bank of India said it will soon commence pilot launches of the Digital Rupee (e₹) for specific use cases. The banking regulator also released a concept note on Central Bank Digital Currency (CBDC), saying the purpose behind it is to create awareness about CBDCs in general and the planned features of the Digital Rupee (e₹), in particular.