Rupee Dives to 96 Against Dollar as Fed Rate Hike Bites

The Indian rupee has depreciated to over 96 against the US dollar for the first time in two months, due to elevated oil prices and a rate hike by the Federal Reserve. The rupee lost ground throughout the day, opening at 95.88 before falling to 96.10. This marks the seventh consecutive session of decline for the currency.

The RBI is expected to intervene in the foreign exchange market, according to Reuters, citing three traders. Aamir Makda, commodity and currency analyst at Choice Broking, noted that the rupee will face high volatility due to rising crude oil prices hovering around $105 per barrel and the dollar's strength in the global market.

The Fed raised interest rates by 25 basis points on Wednesday, its first increase since 2023. The rate hike pushed the dollar index above the 100 mark to a level not seen in over a month. Rajesh Palviya, head of research at Axis Direct, stated that the rate hike marks a shift towards tighter monetary conditions as inflation remains elevated.

The combination of higher US yields, a stronger dollar, and crude oil prices above $100 a barrel poses challenges for India's economy, according to Palviya. He warned that the rupee could remain under pressure, domestic bond yields may stay elevated, and foreign portfolio flows will be volatile.