by Amber Warrick
Investing.com – The Indian rupee hit a record low against the dollar on Thursday after the US Federal Reserve hiked interest rates, while concerns over Russia weighed on Moscow’s heightened tensions with Ukraine.
The dollar fell 0.5% to a record low of 80.430, following a broader slide in Asian currencies after many had expected.
The central bank signaled it had hit a 20-year high as it prepared to take the risk of slowing economic growth and pressure on jobs to rein in inflation.
The dollar’s strength weighed heavily on the rupee this year, with the Indian currency declining nearly 8% as the US Federal Reserve began raising interest rates.
Given India’s heavy reliance on crude oil imports, higher oil prices also impacted the rupee. However, with India importing large amounts of crude oil from Russia, this dependency could further weaken the rupee in the near term.
Further disruptions to Russia’s crude oil supply are expected as the country seeks to intensify its war with Ukraine. President Vladimir Putin this week ordered a partial mobilization of troops to “annex” parts of Russian-held Ukraine.
India has so far delayed US sanctions on Russian oil. However, recent reports suggest that the Modi government is under increasing pressure to reassess its relationship with Moscow.
CNN reported this week that the US is in “deep” talks with India over its reliance on Russian arms and oil. Indian Prime Minister Narendra Modi was also reportedly trying to prevent a major conflict between Putin and Ukraine.
Nonetheless, rising US interest rates and the prospect of constrained oil supply have weighed on the rupee this year, prompting the Reserve Bank to intervene in FX markets.
But India is also struggling with high inflation and unemployment, which limits the RBI’s room for manoeuvre.