Moneycontrol Pro Panorama | Rupee hurtling down, complicates fight against inflation

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The Indian rupee (INR) is plunging to new lows almost every day. At noon on Thursday, it was at 83.15 to a US dollar, marking an 11 per cent depreciation in 2022!

Consensus among analysts points to a roaring dollar index that is making currencies across the world cower. The week also saw a spike in both 2-year and 10-year US Treasury yields, increasing demand for the greenback. Indeed, panic buying of the dollar is accelerating the free fall in the rupee, with all efforts by the Reserve Bank of India proving futile.

The million dollar question is, will the central bank now allow the rupee to find its level? One view is that the RBI has always indicated an orderly depreciation and not targeted any specific level.

For now, the INR seems to be in free fall. According to the IFA Global Research Academy, a weakening rupee is raising systemic risks resulting from higher inflation, higher dollar borrowings, unhedged imports and high currency volatility, “undermining confidence in INR assets and triggering capital market outflows”.

Adding to the chaos is the raging inflation across economies. The US Federal Reserve is certain to continue to hike interest rates further.

However, addressing the issue of global crises, the UN Conference on Trade and Development (UNCTAD) says the current tightening of monetary policy is not just a case of barking up the wrong tree, but will also force the global economy into a recession. Read an analysis of the report here. The UN agency says forcing inflation down could prove to be a mistake and “the policy remedy could prove worse than the economic disease”.

Amid these macroeconomic challenges, what would be the fate of equity markets? According to Ajay Bagga, we are now seeing a bear market rally. For markets to bottom out, we need to see peak inflation, peak US Dollar and peak interest rates.
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Technical Picks: USD-INR, Bajaj Finance, Kolte Patil Developers, City Union Bank, Kewal Kiran Clothing and Crude oil (These are published every trading day before markets open and can be read on the app)

Vatsala KamatMoneycontrol Pro