The rupee recorded its sharpest fall in close to two months on Thursday as emerging market currencies slid on concerns that the US Federal Reserve indicated that it could end its bond-buying programme and start hiking interest rates sooner than expected.
The rupee’s fall was, however countered through dollar flows into the market in late trade, mainly because exporters sold substantial amount of the greenback, according currency dealers.
Compared to its other Asian peers, the rupee was more resilient, with the Indonesian rupiah losing the most in the region, falling 1.138 per cent, followed by the Malaysian ringgit, which was down 0.615 per cent.
Fed chief Janet Yellen on Wednesday had suggested that the US central bank could end its bond-buying programme this fall, and could start hiking interest rates around six months later.
“If the rates are going to rise in the US sooner than later, the dollar would appreciate against emerging market currencies and our rupee would be no exception,” HDFC Securities Ltd wrote in a note to clients.
Reacting to the Fed announcement, both the 30-share Sensex and the broader Nifty closed at their weakest level in two weeks, in line with a drop in global equity markets. The benchmark S&P BSE Sensex snapped its three-day surge and shed 93 points to close at 21,740.09. The 50-share CNX Nifty of the NSE also dipped 40.95 points, or 0.63 per cent, to end below the 6,500-mark at 6,483.10.
Dealers said exporters who were holding on to the greenback cashed in on Thursday to sell dollars around 61.40 levels, the day’s low for the rupee. Higher interest rates in the US may lower the attractiveness of emerging market assets leading to outflows, according to analysts. A US rate hike in mid-2015 is nearly months earlier than what markets had factored in.
US Fed may raise rates as soon as next spring
Washington: The US Federal Reserve will probably end its massive bond-buying programme this fall, and could start raising interest rates around six months later.
The Fed said that it would wait a “considerable time” after shuttering its asset purchase programme before pushing borrowing costs higher. Yellen hesitated when asked what the Fed meant by “considerable.”
“I – I, you know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends …,” she said. Reuters