The Indian rupee fell above 80 per the US dollar for the first time on record on Tuesday, as the greenback continued its rally and foreign capital outflows intensified.
The rupee hit 80.0600 against the greenback shortly after the start of trading, Bloomberg data showed.
High inflation and rising interest rates in the United States, coupled with fears of an impending recession in the world’s largest economy, have fueled a broad dollar rally in recent weeks as investors become increasingly risk-averse.
Tighter US monetary policy has exacerbated outflows from emerging markets like India, where foreign investors have divested a net $30.8 billion in debt and equity this year.
Data released last week showed that US consumer price inflation hit a new four-decade high in June, beating market forecasts and fueling expectations of another big Federal Reserve rate hike next week.
Finance Minister Nirmala Sitharaman attributed the rupee’s sharp decline to external reasons in a written statement Monday before India’s parliament.
“Global factors such as the Russia-Ukraine conflict, rising crude oil prices and tightening global financial conditions are the main reasons behind the Indian rupee’s weakening against the US dollar,” she said.
At the same time, the Indian currency has strengthened against the British pound, Japanese yen and euro so far in 2022, Sitharaman added.
But higher crude oil prices have worsened the trade balance in a country that imports 80 percent of its oil needs.
India’s goods trade deficit widened to a record $26.18 billion in June, official data showed last week, mainly on higher crude oil and coal import prices.
In its monthly economic report, the Treasury said more expensive imports could widen the current account deficit and lead to further rupee depreciation.
Consumer price inflation in India, the world’s sixth largest economy, slowed slightly to 7.01 percent in June after hitting an eight-year high of 7.79 percent in April.
But despite consecutive rate hikes in May and June, price increases remained well above the central bank’s target range of 2% to 6%.
The central bank has also sold more than $34 billion of its foreign exchange reserves to stabilize the rupee.
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