Rupee weakens past 96 per dollar after Fed rate hike

The rupee's depreciation came in the wake of the US Federal Reserve's decision to raise its benchmark interest rate by 25 basis points on Wednesday, marking the central bank's first rate increase since 2023. The move, which caught markets' attention, reflected the Fed's assessment of the US economic situation and inflation dynamics.

Fed officials signalled their expectation of at least one additional rate hike before year-end, suggesting a continuation of the restrictive monetary policy stance. The prospect of higher US interest rates typically strengthens the dollar, as foreign investors seek better returns on dollar-denominated assets, thereby pressuring emerging market currencies like the rupee.

The rupee's breach of the 96 level reflects broader currency market movements across Asia, where emerging market currencies have faced headwinds due to the Fed's tightening cycle. The rupee has been particularly sensitive to shifts in US monetary policy and global risk sentiment, with foreign portfolio flows also playing a significant role in its valuation.

Indian policymakers and market participants will be monitoring further Fed communications and economic data releases for signals about the timing and magnitude of potential future rate actions. The trajectory of US monetary policy remains a key factor influencing capital flows to emerging markets and the rupee's near-term direction.