Bloomberg data showed that the rupee hit 80.0600 against the dollar shortly after the start of trading.
The high level of inflation and interest rates in the United States, coupled with fears of an imminent economic recession in the largest economy in the world, led to the rise in the price of the dollar in recent weeks at a time when investors are trying to avoid risks.
The tightening of US monetary policy has exacerbated the outflow of capital from emerging markets such as India; Foreign investors withdrew a net $30.8 billion in debt and equity this year.
Data published last week showed that consumer price inflation in the United States hit a new level in June, the highest in four decades, exceeding market estimates and reinforcing expectations that the Federal Reserve will raise interest rates significantly next week.
In a written statement to Parliament on Monday, India’s Finance Minister Nirmala Sitharaman attributed the rupee’s massive decline to external causes.
She stated that “international factors such as the Russian-Ukrainian conflict, high crude prices and tightening global financial conditions are the main reasons for the decline of the Indian rupee against the US dollar.”
She added, however, that the Indian currency improved against the British pound, the Japanese yen and the euro during 2022.
However, the rise in crude prices led to the deterioration of the trade balance in a country that imports 80 percent of its oil needs.
India’s merchandise trade deficit widened to a record $26.18 billion in June, official data revealed last week, mainly due to higher import costs for crude and coal.
In its monthly economic review, the Ministry of Finance said that rising import costs would exacerbate the current account deficit and cause the rupee to fall further.
Inflation in consumer prices in India, the sixth largest economic power in the world, fell slightly to 7.01 percent in June, after reaching its highest level in eight years in April, recording 7.79 percent.
But the price hike remained above the 2 to 6 percent target set by the central bank despite the interest rate hikes in May and June.
Also, the central bank sold more than $34 billion of its foreign exchange reserves in hopes of maintaining the stability of the rupee.
AFP