Rupee seen weakening further due to concerns of rate hike by US Fed

RBI is expected to keep the repo rate unchanged in its August 4 monetary policy

The rupee is seen weakening further next month on the back of concerns that the US Fed will soon start raising interest rates. The rupee breached the 64-mark on Thursday due to month-end dollar demand from corporates and oil importers.

The rupee had opened at 63.95 and during intra-day trades it touched a low of 64.05 compared with its previous close of 63.91 a dollar.

At the end of the two-day meeting, the US Federal Open Market Committee (FOMC) said the  economy and job market continue to strengthen, leaving the door open for a possible interest rate increase. The Street is anticipating the US Fed would start raising interest rates later this year.

“There has been dollar buying by corporates and oil marketing companies due to which there is weakness in the rupee. The next level for weakening is seen towards 64.50. The market now awaits the outcome of the Reserve Bank of India (RBI)’s monetary policy,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

RBI will review the monetary policy on August 4. The broad expectation is that the repo rate will be kept unchanged in the monetary policy.

“The dollar is strengthening globally due to expectations that the US Fed may start hiking rates from September. But probably the hike will get postponed to December,” said Anindya Banerjee, currency analyst, Kotak Securities.

In the past, the rupee has outperformed other emerging market currencies. It has been observed in the past that the rupee did not get impacted much due to the Greece debt crisis.

Meanwhile, RBI’s foreign exchange reserves stood at $353.33 billion for the week ending July 17. RBI has been intervening in the foreign exchange market to arrest volatility in the rupee. According to currency dealers even on Thursday, RBI was seen selling dollars through state-run bank to arrest volatility in the rupee against the dollar.