By Ambar Warrick
Investing.com-- The Indian rupee hit a record low against the dollar on Thursday after the U.S. Federal Reserve raised interest rates, while concerns over Russia also weighed after Moscow escalated tensions with Ukraine.
The rupee slipped as much as 0.5% to a record low of 80.430 to the dollar, tracking a broader decline in Asian currencies after the Fed struck a more hawkish stance than many were expecting.
The dollar surged to an over 20-year high as the central bank signaled it was willing to risk slowing economic growth and pressure on the labor market to curb inflation.
Strength in the dollar has weighed heavily on the rupee this year, with the Indian currency trading down nearly 8% as the U.S. central bank began raising interest rates.
High oil prices also dented the rupee, given India’s large dependence on crude imports. But this dependence may bite the rupee further in the near term, given that India imports a large amount of crude from Russia.
Russia’s crude supplies likely face further disruptions as the country looks to ramp up its war with Ukraine. President Vladimir Putin ordered a partial mobilization of troops this week to “annex” parts of Ukraine currently occupied by Russia.
India has so far ducked U.S. sanctions against Russian oil. But recent reports suggest that the Modi government is under increasing pressure to re-evaluate its relationship with Moscow.
CNN reported this week that the U.S. is in “deep” talks with India over its reliance on Russian weapons and oil. Indian Prime Minister Narendra Modi also reportedly attempted to dissuade Putin from pursuing a greater conflict with Ukraine.
Still, rising U.S. interest rates and the prospect of disrupted oil supply have dented the rupee this year, also inviting intervention by the Reserve Bank in currency markets.
But India is also struggling with high inflation and unemployment, keeping the RBI’s scope for intervention limited.