Indian rupee weakens sharply amidst Fed concerns

The Indian rupee fell below 85 against the US dollar for the first time on Thursday following the Federal Reserve’s indication of fewer rate cuts next year, adding more strain on a currency already facing challenges with limited capital inflows.

The rupee dropped to 85.0675 against the US dollar, compared to 84.9525 on Wednesday. The speed of the currency’s decline from 84 to 85 has been quicker than previous drops of similar size.

The rupee depreciated from 84 to 85 in approximately two months, compared to the 14 months it took to drop from 83 to 84. It took the currency 10 months to decline from 82 to 83.

Asian currencies like the Korean won, Malaysian ringgit, and Indonesian rupiah were down 0.8-1.2 per cent on the day, following the rupee’s trend.

Asia FX dropped after the Fed dot plot showed two rate cuts next year, down from the four signalled in September.

“From here, it’s a new phase and we’re going to be cautious about further cuts,” Fed Chair Jerome Powell said.

The Fed’s hawkish stance on interest rates has prompted emerging market central banks to be vigilant against currency fluctuations.

The Reserve Bank of India supported the rupee, Thailand’s central bank aims to stabilise the baht, and Indonesia’s central bank is monitoring and will take action to stabilize the currency.

Attribution: Reuters

Subediting: M. S. Salama