Rupee weakens most in four months against US dollar

The rupee weakened almost 0.6 percent against the US dollar on February 11, its steepest fall in four months, after higher-than-expected US inflation and a dovish stance by the Reserve Bank of India.

The home currency ended at Rs 75.38 per dollar, a level last seen on December 22, 2021. The drop of 0.56 percent from its previous close of 74.95 was the biggest since October 7, 2021. The rupee fell for the fourth consecutive session, extending the currency’s decline to almost 1.4 percent so far this year.

US consumer prices data came in hotter than expected and subsequent comments from a Federal Reserve official raised fears the US central bank will hike rates aggressively to fight inflation.

Continued selling by foreign investors and a dovish tone by the RBI also dampened sentiment. FIIs sold $4.45 billion in January and $2 billion in February. From October to December, FIIs sold $5.12 billion in equities.

“We believe the RBI’s unexpected dovish stance with its focus on growth rather than inflation risk is a slight negative for the INR in the near term for the following reasons, including significant monetary policy divergence with other major central banks, concerns over the RBI’s FX stance, and the risk of the RBI being increasingly seen as lagging behind the inflation curve,” Nomura Research said in a note to investors.

US Labor Department data showed consumer prices surged 7.5 percent last month on a year-over-year basis, topping economists’ estimates of 7.3 percent and marking the biggest annual increase in inflation in 40 years.

The global markets fell further after St. Louis Federal Reserve Bank president James Bullard said the data had made him “dramatically” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.

(Bloomberg and Reuters contributed this story)