The partially convertible rupee opened at 76.54/$1 from 76.26/$1 at the previous close. The Indian currency, which was last at 76.71/$1, has moved in a band of 76.51-76.80/$1 so far in the day.
India’s benchmark 10-year government bond yield last traded 4 basis points at 7.44%. Bond prices fall when yields rise.
The Bank of England on Thursday became the latest central bank to raise interest rates to tackle high inflation, raising the country’s key rate by 25 basis points to 1%.
The move came hours after the US Federal Reserve raised its benchmark policy rate by 50 basis points amid runaway inflation in the world’s largest economy.
Higher interest rates in advanced economies typically drive global capital outflows from riskier emerging market economies such as India.
The U.S. dollar index, which measures the currency against six major rival currencies, was last at 103.67 from 103.58 at the previous close.
The latest hawkish turn by major central banks has exacerbated the selling pressure exerted by foreign investors on Indian equities over the past eight months.
So far in 2022, foreign institutional investors have sold Rs 1.3 lakh crore worth of Indian stocks, according to NSDL data. Foreign players have also reduced their exposure to domestic debt to the tune of Rs 9,155 crore, according to the data.
At 10:30 a.m., the BSE Sensex and Nifty50 were each trading 1.7% lower.
Even as the Reserve Bank of India announced a surprise rate hike on Wednesday, with US interest rates expected to rise significantly from current levels, analysts are pessimistic about the outlook for the rupee.
After weakness in safer DMs, dark clouds are gathering over riskier EM FX Oil prices are back above $110 as Europe braces for an oil embargo on Russia. Basically, the domestic trade deficit widened again above $20 billion and inflation is expected to jump around 8% in April,” said CR Forex Advisors MD Amit Pabari.
“In summary, once FDI flows evaporate from the market and the RBI clears a downward move, we could see the USDINR pair heading towards the 77 and 77.50 levels in the near term.”