The rupee plunged by 25 paise to close at its lifetime low of 77.50 against the US currency on Thursday as the dollar touched a fresh two-decade high in global markets on strong risk-averse sentiment and a higher-than-expected US inflation triggered fears of aggressive rate hikes.
The local currency also touched its record intra-day low of 77.63 to a dollar as losses in domestic stocks, concerns over weak growth, and persistent forex outflows negated the impact of a fall in crude oil prices.
At the interbank forex market, the rupee opened steeply lower at 77.52 against the greenback and moved in a range of 77.36 to 77.63 in the day trade.
The rupee finally ended at 77.50, down by 25 paise over its previous close of 77.25, cutting short its two-day winning run.
Previously, the domestic unit had closed at the record low of 77.44 against the greenback on May 9.
"Indian rupee registered a life low of 77.63 a dollar on a stronger dollar index and risk-averse sentiments. Investors sought haven assets with higher inflation and interest rates raised concerns over growth," said Dilip Parmar, Research Analyst, HDFC Securities.
The dollar index, a basket of six currencies, marked a new two decades high of 104.51 on elevated retail inflation.
The dollar bull run can continue with no sign of relief in the Chinese yuan and surging inflation keeping the central bank on the front foot, he added.
Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services said, "Rupee fell to fresh all time lows today as dollar continued to strengthen. But losses remained restricted as the RBI intervened to curtail volatility. Dollar strengthened after inflation rose in April in the US."
Global equity markets also went into a tailspin after higher-than-expected US retail inflation of 8.3 per cent for April fanned fears of aggressive rate hikes by the US Federal Reserve.
Retail inflation in India also surged to an eight-year high of 7.79 per cent in April due to costlier fuel and food items as the Russia-Ukraine war stoked the commodity prices.
Inflation remained above the RBI's comfort level of 6 per cent for the fourth month in a row which may prompt the central bank to go in for another interest rate hike in the next month policy review.
Worried over the rising inflation, the RBI in a surprise move raised the repo rate by 40 basis points to 4.40 per cent last week.
Meanwhile, industrial production growth remained subdued at 1.9 per cent in March compared to a year ago, mainly due to poor performance by the manufacturing sector which showed staggered impact of the third wave of the pandemic.
On the domestic equity market front, the BSE Sensex ended 1,158.08 points or 2.14 per cent lower at 52,930.31, while the broader NSE Nifty fell 359.10 points or 2.22 per cent to 15,808.
Foreign fund outflows have also weighed on the rupee. Foreign institutional investors remained net sellers in the capital market on Thursday, as they offloaded shares worth Rs 5,255 crore, as per stock exchange data.
Brent crude futures, the global oil benchmark, fell 2.32 per cent to USD 105.02 per barrel.
American brokerage Morgan Stanley on Wednesday cut its India growth estimate by 30 basis points for 2022-23 and 2023-24 on global headwinds and warned that macro stability indicators like inflation are set to "worsen" going ahead.
Tightening of policy rates by major central banks, including the RBI, would adversely impact demand in the next 6-8 months and slow down the recovery process, as per sources.
Besides the Reserve Bank of India (RBI), several central banks including the US Federal Reserve and Bank of England have hiked their benchmark lending rates to rein in inflation, which has been exacerbated by the Russia-Ukraine conflict.
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