The hike in the overnight benchmark interest rate by half a percentage point by the US Fed, coupled with indications of more hikes in 2023, weakened the rupee and pushed up yields of Government Securities (G-Secs).
The Indian unit (INR) ended 30 paise weaker at 82.76 per dollar (USD) on Thursday.
Anindya Banerjee, Vice-President, Kotak Securities Ltd, said the rupee was one of the weakest currencies as demand for dollars in the onshore market remained strong and lack of exporter selling and carry trades had kept the supply low.
“A hawkish Fed also helped USD. Over the near term we expect a range of 82.25 and 83.00 on spot,” he said.
Aditi Gupta, Economist, Bank of Baroda, said with the Fed signaling that high rates are likely to stay even in CY23, and the possibility of a slowdown in the US entrenched in its forecasts, the DXY (Dollar Index) may not see a significant downside move.
Oil prices have see-sawed, but have remained benign compared with the highs seen during the Russia-Ukraine war.
“Concerns have, however, remained on the domestic side. Trade and current account deficits have been increasing, raising concerns over their financing.
“Goods exports are likely to slow down amidst a protracted slowdown in global growth. Even service receipts will be lower as growth in key markets slows down,” Gupta said.
She underscored that the increasing pressure on the current account needs to be offset by strong capital inflows. However, concerns remain on that front as well.
“FPI flows, although positive, may not be enough to compensate. Even FDI inflows have remained muted. With higher global interest rates, even ECB flows will be difficult to get.
“...Overall, we expect INR in the range of 82-83/$ in the near-term,” she said.
Meanwhile, the yield on the benchmark 10-year G-Sec rose about 5 basis points to close at 7.2676 per cent (previous close: 7.2218 per cent), with the price declining about 32 paise to close at Rs 99.9325 (Rs 100.2475).