‘Global factors’ behind rupee’s fall against US dollar

THE Indian rupee fell to more than 80 per US dollar for the first time on Tuesday (19), as the dollar extended its rally and foreign capital outflows intensified.

The rupee hit 80.0600 against the US dollar, Bloomberg data showed, before paring losses on suspected central bank intervention to close at 79.9487.

High inflation and rising interest rates in the United States coupled with fears of an impending recession in the world’s

biggest economy have fuelled a broad dollar rally in recent weeks as investors become increasingly risk averse.

Tighter US monetary policy has exacerbated outflows from emerging markets such as India, where foreign investors have withdrawn a net $31 billion (£24.8bn) this year.

In a written statement to the Indian parliament on Monday (18), finance minister Nirmala Sitharaman attributed the rupee’s sharp fall to external reasons.

“Global factors such as the

Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are the major reasons for the weakening of the Indian rupee against the US dollar,” she said.

However, the currency has strengthened against the British pound, the Japanese yen and the euro in 2022 so far, she added.

Meanwhile, consumer price inflation in India, the world’s sixth-largest economy, cooled slightly to 7.01 per cent in June after hitting an eight-year high of 7.79 per cent in April. But price rises have persisted above the central bank’s two-to-six per cent target range despite interest rate hikes in May and June.

The central bank has also sold more than $34bn (£28bn) of its foreign currency reserves in an effort to stabilise the rupee.

The rupee’s move followed Russia’s Gazprom telling Europe on Monday that it cannot guarantee gas supplies following maintenance work on its Nord Stream pipeline.