The Indian rupee hit a record low of 78.39 against the US dollar on Wednesday. The US Federal Reserve (Fed) raised the benchmark interest rates by a 75 basis points hike in June, this year to tackle the high inflation.
According to sources, the equity market which is a place where stocks and shares are traded declined heavily after two sessions of inclination. The Sensex or Stock Exchange Sensitive Index fell from 709.54 points to approximately 51,822.53 and the nifty or National Stock Exchange Fifty’s index crashed from 225.50 points to 15,413.30. Foreign portfolio investors or FPIs which consist of securities and other financial assets held by the investors residing in the country sold shares worth only 2,920 crores.
A sharp decline in the rupee and equity benchmark has specified a distinct economic slowdown. The Fed has declared a strong hike in the interest rate which can accelerate cash outflow in their country weakening the rupee by posing a threat to imported materials. This amount of interest rate hike can cause a recession in the US which can impact India’s export market heavily.
According to reports, India is the biggest importer of crude oil, and the devaluation of the rupee can increase expenses during its import. The rupee and equity benchmark have already indicated that crude oil has slanted around 6 percent because US President Joe Biden cut taxes on fuel due to inflation. Although, the current deficit in crude oil import is expected to increase in valuation to 3 percent in the year between 2022-23.
According to research by the Federal Reserve Bank of Chicago, the yield curve in the US has inverted in recent months. A yield curve can be a line when interest rates of bonds have equal credit quality. However, when the yield curve shows a slope that indicates changes in the economic activity. An inverted slope of the yield curve depicts the future recession in the US.
A recession in the US can slow down the amount of revenue collected by Indian IT companies. The future recession in the US can be averted if India can develop a better export policy.
