A plunge in domestic equity markets also dragged down the domestic currency, which has shed 0.8 per cent against the US dollar so far this week.
The partially convertible rupee opened at 77.4190/$1 versus 77.2400/$1 at previous close. So far in the day, the Indian currency hit a fresh all-time low of 77.5930/$1, surpassing the previous record intraday low of 77.5250/$1 touched on May 9.
On May 9, the rupee had settled at a record closing low of 77.4650/$1. On Thursday, the domestic unit moved in a band of 77.3260-77.5930/$1.
“Yesterday, US CPI inflation data failed to surprise the markets releasing at 8.3% in April slightly down from 8.5% in March,” CR Forex Advisors MD Amit Pabari said.
“Although it showed the signs that inflation is peaking, it remained closed to the figure of 40 years high reiterating the calls for an aggressive Fed interest rate hike. This led to fall in US equity indices once again and provided strength in the US dollar index.”
The US dollar index, which measures the US currency against six rival currencies, was hovering around a 12-year high of 103.95. The index, which had touched a high of 104.05 earlier on Thursday, had settled at 104.03 in the previous session.
Higher US interest rates diminish the appeal of assets in riskier emerging market economies such as India.
Foreign portfolio investors have embarked on an unprecedented bout of selling pressure in Indian equities, having net sold a massive Rs 1.4 lakh crores worth of stocks so far in 2022. A weaker rupee erodes FPIs’ returns from Indian assets.
Dealers, however, expect the Reserve Bank of India to intervene in the foreign exchange market to rein in the rupee’s depreciation and prevent excessive volatility in the exchange rate.
The central bank, which at present has foreign exchange reserves just shy of $600 billion, has been recently intervening heavily in the forwards segment to shield the rupee from too much damage in the face of a stronger dollar, dealers said.
“RBI will try to hold up and act as a shield for the Indian rupee. The protection near 77.50 will be key in the short term before it moves towards 78.00 levels. Going further, the higher commodity and fuel prices, and continuous FII selling is going to put pressure on India’s current account deficit indicating weakness in the currency for a longer period of time,” Pabari said.