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FPI outflow, fears over US Fed taper pull Re below 76-mark

The currency closed at 76.23, down 36 paise, against the dollar amid a hawkish tilt from the US Fed and expectations of a faster wind-down of asset purchases, while the Omicron coronavirus virus scare has also hurt the risk appetite in the market.

By: ENS Economic Bureau | Mumbai |
December 16, 2021 3:30:39 am
he rupee closed at 76.06 against the US dollar. Foreign investors pulled out another Rs 2,069 crore from Indian markets on Friday, taking the total outflows to Rs 26,600 crore in December so far.(File)

The rupee on Wednesday fell below the 76 per US dollar level as foreign fund outflows intensified following global strengthening of the US dollar ahead of the US Federal Reserve meet.

The currency closed at 76.23, down 36 paise, against the dollar amid a hawkish tilt from the US Fed and expectations of a faster wind-down of asset purchases, while the Omicron coronavirus virus scare has also hurt the risk appetite in the market. The BSE Sensex declined by 329 points to 57,788.03, while the NSE Nifty index fell 103 points at 17,221.40.

Foreign investors pulled out Rs 3,407 crore from stock markets on Wednesday, taking the total outflows to Rs 23,148 crore in December. According to analysts, the rupee weakened as the dollar index surged after wholesale price in the US rose to record highs.

The rise fuelled expectation among investors that the US Federal Reserve, at its policy meeting, may taper its bond purchases and also announce rate hikes faster than expected to check high inflation, IFA Global Research said. The rupee fall is expected to push up import costs while exporters may benefit from the dollar’s rise.

“The Fed seems to be concerned about reining in high inflation over the impact of the Omicron variant now, which is boosting the appeal of the safe-haven dollar. Inflation in the US is running at a multi-decade high, and rising price pressures are likely to continue in 2022 as well, which coupled with a low pace of hiring has raised the bets for an earlier-than-expected rate hike,” said Sugandha Sachdeva, VP—Commodity & Currency Research, Religare Broking.

Explained

Crude, US prices weigh

A surge in wholesale prices in the US as well as the rebound in crude prices have weighed on the rupee. Global central banks’ decisions may dictate rupee movement.

The rate hike could spur capital outflows from emerging markets like India and weigh on the local unit. The Fed is likely to wrap up the taper process by March next year and follow through with its rate hike cycle by April or May.

Investors will also look for clues from the Federal Reserve about the timing of interest rate hikes in 2022. Moreover, a sharp fall in domestic equity indices also weakened the rupee.

The European Central Bank, the Bank of England and the Bank of Japan, too, are set to announce their monetary policy decisions this week.

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