Indian Rupee Breaks Rising Streak as Hawkish Fed and Soaring Oil Prices Weigh Down Currency

This week, the Indian rupee experienced a slight depreciation, falling to 94.24 against the US dollar, driven primarily by rising oil prices and intensified expectations surrounding a hawkish stance from the Federal Reserve. Despite this weakness, there was initial support earlier in the week from robust foreign portfolio inflows, which saw net purchases exceeding $8 billion in Indian equities for November, along with an additional $800 million directed towards local debt markets. This influx had temporarily lifted the rupee to a six-month high, yet the prevailing geopolitical and economic tensions have stalled its potential recovery.

The recent rise in US Treasury yields, particularly the notable increase in the sensitive 2-year yield, has heightened market speculation regarding a potential 50-basis-point rate hike by the Fed next month. Such sentiments have further pressured Indian equities, with the benchmark Nifty 50 index reflecting this uncertainty through a noted decline. Simultaneously, the yield on India’s 10-year bonds has increased over 6 basis points to 7.31%, illustrating the interconnectedness of global monetary policy shifts and local market responses.

In the context of these developments, analysts suggest that the Reserve Bank of India (RBI) is likely to take advantage of any periods of strength in the rupee to replenish its foreign exchange reserves. However, while downside risks to the rupee appear to have diminished, the prospects for sustained appreciation remain limited. Given the recent rise in India’s merchandise trade deficit to its highest level in a year, there are concerns that the rupee could face additional pressure moving forward. Overall, the currency trajectory seems to indicate a phase of relative stability rather than significant strengthening in the near term.

Source: The Economic Times

(Expert Note: This intelligence brief was structured and verified by the Wealthova editorial desk.)