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Rupee at record low on hawkish Fed, investors pin hopes on equity flows

·2-min read
A street side restaurant owner holds a bundle of Indian currency notes as he sits outside his restaurant in New Delhi

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee hit a record low on Thursday as the dollar surged on the Federal Reserve sharply hiking rates and maintaining a stance that is more hawkish than expected.

The partially convertible rupee fell 0.7% to 80.5625 per dollar as of 0451 GMT, with the dollar index up nearly 1% to a new two-decade high of 111.60.

The Fed's new projections showed rates peaking at 4.6% next year, with no cuts until 2024. It raised its target interest rate range by another 75 basis points (bps) overnight to 3.00%-3.25% in a bid to tame runaway inflation.

Asian currencies tumbled, with some hitting record lows while the crucial Chinese yuan eased further to 7.10 per dollar.

The Fed's aggressiveness would result in the rupee trading on the weaker side of 80 for the session, analysts pointed out. It's a level the Reserve Bank of India has proactively defended in the past, per traders.

The Fed's tone was "more on the hawkish side, markets are pricing another 75 bps hike in November," said Dilip Parmar, research analyst at HDFC Securities.

Meanwhile, the Indian government is not averse to a weaker rupee in line with global market fundamentals, a senior official told Reuters.

In the short term, rupee may trade weaker but a combination of RBI's alertness, lower commodity prices and likely equity inflows into Indian markets could pull the currency back under 80, said Sudarshan Bhattacharjee, principal economist at online debt platform Yubi.

India's equity markets got $8.5 billion of inflows over the past three months. "So this slowdown in the U.S. could be positive for India. At this juncture, India's growth story is fundamentally strong," Bhattacharjee said.

Indian stocks were down 0.6% on the day, posting smaller losses than most of its peers.

(Reporting by Anushka Trivedi in Mumbai; Editing by Dhanya Ann Thoppil)