The rupee fell for the second straight session on Tuesday, following a stronger dollar and a decline in equities ahead of inflation data out of the US and at home as investors wait to see the impact of the war between Russia and Ukraine on domestic price pressures.
Reuters quoted the rupee at 76.10 against the dollar on Tuesday from its previous closing rate of 75.94, and the PTI reported the currency was closed for the time being on Tuesday.
The weakness was mainly driven by the dollar which ruled over expectations that the data would show US inflation has risen the most in 16 years, leading to an even more aggressive path of rate hike by the Federal Reserve, including faster quantitative tightening.
Those expectations for faster and more significant Fed rate hikes propelled the dollar index, which measures the dollar’s strength against the six most traded currencies, above 100 on Tuesday.
What the rupee hasn’t helped are expectations that retail inflation in India is likely to climb further above the top end of the Reserve Bank of India’s target of 2-6 percent.
While the RBI reluctantly changed its policy stance, saying its focus has now shifted to inflation, away from growth, it is likely to lag far behind the US central bank, widening interest rate differentials and hurting the rupee even more.
Indian stock benchmarks extended their decline for the second consecutive session on Tuesday, swept up by metals and information technology (IT) stocks as market participants waited for last month’s retail inflation data.
The latest stock market data revealed that foreign institutional investors (FIIs) unloaded Indian shares worth Rs 1,145.24 crore on Monday.
“The (stock) market is under pressure from inflation concerns ahead of the release of US inflation data. Even (India’s) CPI inflation in March is expected to rise to 6.37 percent from 6.07 percent in February,” Rahul said. Sharma, C0- Founder of Equity 99.
In addition, the aggressive turn of the RBI in its policy review on April 8. Few sectors are expected to negatively impact their quarterly results due to the rise in commodity prices and inflation, which has put pressure on the market,” he added.