Rupee Falls To 18-Month Low; Eyes Levels Of 76.5/US Dollar By December End

The domestic currency rupee is close to reaching 76 levels, hitting intraday low of 75.96 per US dollar on December 14, 2021. In the current regime, a host of factors have been weighing on the rupee, including continued foreign fund outflows, omicron worries, high inflation and subdued equities. On Monday, the currency closed at 75.76 per US dollar.

CPI inflation data revealed on Monday for November came in at a 3-month high of 4.91%, while WPI inflation surged to its highest in 12 years to over 14%.

As per an ET report, the central bank of the country will let the local unit depreciate further as the weaker currency will facilitate exports while the centre pushes manufacturing by providing special incentives. The weakened currency also leads to improvement in the finances of the RBI.

As per analysts, local currency may hit levels of 76.3-76.5 by December end if the US central bank expedites the withdrawal of bond purchases. The Fed is likely to increase its pace of asset buying from $15 billion in November to $25-30 billion and maintain status quo in policy rates.

Meanwhile, equities are down for the second straight day with Nifty just holding on to levels of 17,300 points.

"The Indian rupee has fallen to its lowest level since June 2020, which makes it an 18-month low against the US Dollar. The fall is largely driven by the fear of the rapid spread of the Omnicron variant. This post the UK PM's warning of a 'tidal wave' of new cases, and WHO stating it as a high global risk.

There is a broad weakness across Asian markets ahead of the US Fed's meeting that may announce an accelerated pace of liquidity tightening. A tapering by US Fed will lead to an outflow of fund flows from emerging markets. The inflation in the US has risen to a multi-decade high, posing a risk for the Fed to act sooner than expected.

The weakness in the rupee is despite record RBI reserves of around $640 billion. The central bank has added over $60 billion in forex reserves in FY22. The latest retail inflation data in India hit a 3-month high. The next few days will be dominated by US Fed, ECB, and BoJ as they meet to decide on their respective monetary policy. Central banks' action on rate, liquidity, and the resolve to aid recovery in growth rate will guide global equities and currencies.", views as expressed by Mr. Nish Bhatt, Founder & CEO, Millwood Kane International on rupee's fall to an 18-month low.

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