The Indian rupee depreciated to a historic low of 83 per US dollar today for the first time on rising US treasury yields, which pushed the rupee further down. The domestic currency opened at 82.29 against the greenback but fell further to 83.02 during the day, a record low of 66 paise or 0.8% from the previous close. Overall, the domestic currency has depreciated more than 11% against the US dollar so far this year. Before this, the local currency had hit an all-time low of 82.69 against the USD on October 10.
The reason behind the rupee's slide against the US dollar is believed to be a demand boost for the US dollar by some public sector oil importers, pushing the rupee down against the greenback. The benchmark Indian 10-year government bond yield, which had fallen to 7.3% earlier today, ended at 7.4510%. It had ended at 7.4261% during the previous close.
With a sudden plunge of the rupee against the US dollar, India's equity markets have also shown a similar trend. The equity benchmark Sensex fell from the day's high of 59,374.82 to close in the green at 59,107.19, while Nifty 50 slipped below 17,500 from the day's high of 17601.35 and later closed in the green at 17,512.25.
The latest historic slide in the rupee comes after finance minister Nirmala Sitharaman, during her six-day visit to the US last week, said the Indian rupee had withstood the sharp strengthening of the US dollar and performed much better than many other emerging market currencies. She said the Reserve Bank of India (RBI) was working to contain the rupee’s volatility and that the rupee will find its own level.
"Dollar is strengthening incessantly. So obviously, all other currencies are performing against the strengthening dollar. I am not talking about technicalities but it is a matter of fact India's rupee probably has withstood this dollar rate going up,” a news agency quoted the FM as saying. She added the fundamentals of the Indian economy are good. "The foreign exchange reserve is good. This is what I keep repeating that inflation is also at a manageable level,” she adds.
Not only the rupee but the US dollar has strengthened against other major currencies as well. After the data coming out from the UK showed inflation rising to a 40-year high of 10.1% in September, it raised the possibility of the Bank of England raising key interest rates further. With this, British Pound Sterling has weakened by 0.6% against the US dollar.
The recent depreciation of the rupee against the US dollar has contributed to higher inflation in India, forcing the major global bodies like the World Bank and the International Monetary Fund (IMF) to downgrade India’s GDP growth forecast for FY23. In fact, India's retail inflation spiked 7.41% in September, at the fastest pace in five months. The currency instability gives a rise to higher inflation as imports become more costly. This also means the central bank will have to keep rising key lending interest rates.
