The US Fed’s aggressive 75 basis points rate hike, coupled with indications that another similar-sized increase is in the offing sank the rupee, which closed at a lifetime low of 80.86 per dollar on Thursday. The Indian currency (INR) declined about 89 paise (or 1.1 per cent) over the previous close of 79.7950 per dollar.

The last time the rupee slumped more than 1 per cent was on February 24, when it depreciated 1.47 per cent (or by ₹1.095) to close at 75.65 against previous close of 74.5550.

“As expected, Fed’s 75 basis points rate hike and future hawkish guidance was a major trigger for the Indian rupee to break the two-month-old consolidation range of 79 to 80.10. After opening near 80.28 levels, down by almost 30 paise, it extended its depreciating move throughout the day as equities were seen under pressure and emerging market currencies were trading with a cut against the USD,” said Amit Pabari, Managing Director, CR Forex Advisors.

He observed that the RBI has less scope to intervene due to a deficit in banking system liquidity. Overall, Pabari expects the rupee to depreciate further towards 81.20 to 81.50 over the short term.

In line with peers

“When it comes to the Indian forex market, the US Fed’s aggressive rate hike decision has added fuel to the fire lit by Russian President Vladimir Putin who ordered a partial mobilisation. In the last couple of days, the Korean won and Chinese yuan depreciated more than the rupee. For the last so many days, though all other Asian currencies were weakening against the dollar, RBI did not allow the rupee to depreciate to that extent. So, it was the rupee’s turn to depreciate today,” said the chief forex dealer of a private bank.

He underscored that the RBI cannot go on supplying dollars to prop up the rupee. Though there was mild intervention which strengthened the rupee from 80.68 to 80.55, it could not be sustained. Once the RBI stopped dollar supply, the rupee found its own level on Thursday.

BoJ intervention

The dollar index (DXY), which strengthened above 111 during the Indian forex market trading hours, slipped below 111 level due to Bank of Japan’s intervention (BoJ). BoJ sold dollars for the first time since 1998 to prop up the yen. This move could help strengthen Asian currencies, including the rupee, a bit.

Anindya Banerjee, Vice President, Kotak Securities, observed that post super hawkish Fed and sell off in equity markets, there was significant unwinding of shorts in dollar. “The central bank seems to have not intervened aggressively. However, in the coming sessions, we expect RBI to step in and contain volatility. Therefore, a range of 80.40 and 81.20 can be seen,” he said.

GSecs rise

Meanwhile, the Government Securities market, too, felt the heat of the Fed rate hike. Yield of the widely traded 10-year GSec (coupon rate: 6.54 per cent) shot up about 10 basis points to close at 7.3478 per cent (previous close: 7.2525 per cent), with its price crashing by about 62 paise to close at ₹94.605 (₹95.22).