Rupee Continues Its Downward Trajectory On US Fed’s Decision To End Pandemic-Era Stimulus

The domestic currency rupee continued to slide against the US dollar on December 16, 2021. Against the previous close of 76.23, the unit in trade on Thursday opened at 76.29 per US dollar and moved in a range of 76.0637-76.3175 so far.

The losses in the currency are seen after the US Federal Reserve in its policy statement revealed after Indian market hours on Wednesday on expected lines announced to accelerate the rate of unwinding bond purchases. The statement provided that by March 2022, the US central bank will end the large-scale bond purchases, a system employed to infuse liquidity amid the corona led economic disruption. Also, by the next calendar year end, there are projected 3-rate hikes of 25 basis points each. 1 bps or basis point is one-hundredth of a percentage point.

The hawkish stance taken by the US central bank for emerging market currencies including the rupee means a considerable potential reduction of foreign inflows.

Unabated selling by FPIs in domestic equities and debt with net sales worth Rs. 80,000 crore since October is also adding to the pressure on the rupee.

"FIIs do not like volatility in the local currency and their selling in equities is creating exactly that. Omicron concerns have come back to the fore; oil prices are rising and stock markets are cracking. So far, the Reserve Bank of India has not put a strong defence of the rupee in the face of fundamental shifts, but we expect the rupee to stabilise around 76/$1 levels because of exporter activity and the RBI's considerable reserve arsenal," a dealer with a state-owned bank is quoted as saying in a leading dailies report.

Meanwhile, Indian equities ended on a flat note with a positive bias, with Nifty still holding below 17,250 levels, while rupee last traded at 76.09/ US dollar.

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