The US Federal Reserve’s decision to hike interest rates on Thursday pulled the rupee sharply down 40 paise against the US dollar to end at 67.83 as the US currency gained strength and fears of more capital outflows increased after the rate hike announcement. The Sensex also fell by 84 points amid fears over capital outflows. The dollar strengthened across the board after the Fed upgraded its rate hike outlook amid expectations of economic projection surprises which may fuel further steep tightening path. The higher demand for the dollar from importers against the backdrop of sustained capital outflows predominantly kept rupee under immense pressure. The rupee opened sharply lower at 67.76 from Wednesday’s closing value of 67.43 and hit a low of 67.87 before ending at 67.83, showing a steep loss of 40 paise, or 0.59 per cent. Watch what else is making news: Vaibhav Agrawal, head of research, Angel Broking, said: “Fed raised the funds rates by 25 bps after a gap of a year. While this has been along the market expectations, Fed’s signal to raise rates by three times next year is faster than market expectations. This is likely to increase US interest rates faster, which will strengthen the US dollar putting pressure on the Indian rupee.” He said Fed’s rate hike indicates a strong US economy which is good news for the global economy but the higher quantum of rise in US interest rates will be seen negatively in near term by the markets. “We believe that the domestic markets may remain volatile for some time with expectation of rising US interest rates as well as high uncertainty of the impact of demonetisation,” Agrawal said. The stock market also declined due to the Fed rate hike. The 30-share barometer Sensex started on a negative note, fell further but somewhat recovered to end at 26,519.07, down 83.77 points, or 0.31 per cent. The NSE Nifty fell 28.85 points. Anand James, chief market strategist, Geojit BNP Paribas Financial, said: “With Fed decision drawing no major negative surprise, Indian stocks broke free of the bearish bias, and swung higher sharply. But with few domestic cues to push ahead, the early gains could not sustain. Meanwhile, bullish prospects for US economy boosted IT stocks, while shipping firms also saw buying on new cabinet bill.”
