Rupee
RBI on alert! Interest rate hike may be coming as rupee crashes to fresh low
Mumbai/IBNS: The Reserve Bank of India is reportedly exploring all available measures, including a possible interest rate hike, to stabilise the falling rupee amid rising geopolitical tensions in West Asia, Bloomberg News reported.
According to the report, top RBI officials, including Governor Sanjay Malhotra, recently held a series of internal meetings to discuss the next course of action to support the Indian currency.
The central bank is understood to have stepped up efforts after the rupee touched a fresh record low on Wednesday as global markets remained nervous over the continuing West Asia crisis.
The Indian currency slumped to an all-time low of 96.85 per US dollar during trading.
Rupee touched 96 per US dollar last Friday.
The Indian rupee has come under intense pressure amid the escalating West Asia conflict, with the currency falling to record lows against the US dollar in recent sessions.
Analysts say rising crude oil prices, foreign investor outflows and global uncertainty are the key reasons behind the sharp weakening.
Why is the rupee weakening?
Rising crude oil prices
India imports a major portion of its crude oil from West Asia. As tensions in the region intensified, global oil prices surged sharply, increasing India’s import bill and demand for dollars.
Higher oil prices generally weaken the rupee because India has to spend more foreign currency on energy imports.
Flight to the US dollar
During geopolitical crises, global investors usually move money toward safer assets such as the US dollar and US Treasury bonds. This has strengthened the dollar globally while putting pressure on emerging market currencies like the rupee.
Foreign investor outflows
Foreign institutional investors have pulled billions of dollars from Indian equities and bonds amid global uncertainty.
The outflows have increased demand for dollars and weakened the rupee further.
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