Rupee Falls Past 96 Per Dollar After Fed Rate Hike, Rising Oil Prices Add Pressure

The rupee breached the 96-per-dollar level for the first time since July on September 17 after the US Federal Reserve raised interest rates and signalled the possibility of additional monetary tightening.

The domestic currency was trading at 96.03 against the dollar after closing the previous session at 95.95. The decline followed the Fed’s decision to increase its benchmark interest rate by 25 basis points to a range of 3.75%-4%.

Fed rate hike weighs on rupee sentiment

Most Federal Reserve policymakers expect at least one more rate increase this year as the central bank continues efforts to contain inflation. The move has strengthened the dollar and added pressure on emerging market currencies, including the rupee.

Rising inflation concerns and persistently high crude oil prices have also pushed other major central banks, including the Bank of Japan and the European Central Bank, towards tighter monetary policies.

“The rupee has spent two sessions near Rs 96.00, and the global backdrop has now become less favourable. A sustained move above Rs 96.00 can open the way towards Rs 96.30 – Rs 96.50 in the near term,” Amit Pabari, managing director at CR Forex Advisors, said.

Brent crude prices eased slightly to around $105.69 per barrel but remained above the $100 mark amid concerns over supply disruptions caused by continuing tensions in West Asia.

Oil prices and global rates add to pressure

The combination of higher crude prices, inflation risks and foreign portfolio outflows has increased pressure on the rupee. The Fed’s latest decision could also strengthen expectations of a rate hike by the Reserve Bank of India during its October monetary policy meeting.

Market expectations indicate a possibility of another Fed rate increase in October, with further hikes already priced into the current tightening cycle. Analysts said the global rate outlook could continue to weigh on the rupee in the near term.