27 Jan , 2022 By : monika singh
NEW DELHI: The rupee weakened against the US dollar on Thursday as the Federal Reserve, late Wednesday, said that it would likely raise interest rates in March in order to tamp down on hardening inflation in the world’s largest economy.
Following the US Federal Open Market Committee’s two-day meet which ended Wednesday, Fed Chair Jerome Powell also said that the central bank would seek to wrap up asset purchases by March.
The partially convertible rupee opened at 75.1180 per US dollar as against 74.7750 at the previous close. So far in the day, the Indian currency moved in a band of 75.0950-75.1180/$1.
The Fed’s commentary sent yields on US Treasury papers surging, with the 10-year note last trading 8 basis points higher at 1.85 per cent.
The dollar index, which measures the US currency against six major currency pairs, strengthened well past the psychologically significant 96 mark, and was last at a multi-week high of 96.62. The index was at 95.95 at previous close.
“The USDINR pair moving alternatively up and down has been seen for the past 12 months and this time also moved from 74.95 to 76.30 and then to 73.77 and now above 75.10 today. It gave good opportunity to exporters earlier and now to importers. We expect a range of 74.80 to 75.40,” Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors said.
“Importers to now wait for better opportunities and exporters to start selling for medium term of say 6 months.”
With the Fed ramping up its efforts to tame inflation in the US, domestic traders feel that the central bank could raise interest rates by a greater quantum than was earlier expected, with some fearing a 50-basis-point rise in March itself. In December, the Fed had signalled three rate hikes of 25 bps each in 2022.
The promise of higher interest rates in the world’s largest economy is likely to exacerbate the recent selling pressure displayed by foreign portfolio investors in Indian equities, dealers said.
So far in the current month, FPIs’ net investment in Indian equities has reduced by Rs 15,766 crores, NSDL data showed. This was preceded by close to Rs 40,000 crore worth of sales from October to December 2021.
Government bonds also sold off, with yield on the 10-year benchmark 6.54 per cent 2032 paper jumping past the psychologically significant 6.70 per cent mark to last trade 5 basis points higher at 6.71 per cent.
Bond prices and yields move inversely.
With the Reserve Bank of India announcing no fresh rounds of bond purchases, dealers expect sovereign bond yields to harden even further ahead of the Budget announcement on February 1.
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