MUMBAI (Reuters) - The Indian rupee dropped to an all-time low versus the dollar on Monday on bets the Federal Reserve will keep a restrictive stance for longer, prompting the Reserve Bank of India to step in.
The rupee closed at 79.9625 per U.S. dollar, down from 79.8650 in the previous session. The local currency had dropped to a record low 80.12 earlier in the day before the RBI sold the dollar to boost the rupee. The intervention by the Indian central bank was confirmed by three traders to Reuters.
"The underlying tone for rupee is weak based on global tightening phase," said Arnob Biswas, head research at SMS Global Securities. He reckoned that it was possible that the RBI may not intervene a lot and could allow the rupee to fall in the face of broad dollar strength.
The dollar index climbed to its highest level in 20 years, boosted by higher short-term U.S. yields and risk aversion. Fed Chair Jerome Powell said restoring price stability will likely require maintaining a restrictive policy stance "for some time", seemingly pushing back against expectations that the U.S. central bank could cut rates later next year.
Further, Powell noted that reducing inflation would likely require a sustained period of below-trend growth, hurting demand for risk assets. He repeated that the size of rate hikes remains data dependent, but his comments were seen hawkish enough to price in a higher chance of a 75-basis points rate hike next month. Indian equities, in line with other Asian gauges, slipped. The BSE Sensex closed down 1.5%, its lowest in more than three weeks.
Oil prices inched higher as investors balanced expectations the Organization of the Petroleum Exporting Countries (OPEC) will cut output to support prices against concerns over the growth outlook.
(Reporting by Nimesh Vora)