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NEW DELHI – The rupee plunged versus the US dollar as rapid shifts towards higher interest rates by major central banks across the globe soured the outlook on emerging market assets, wreaking havoc on domestic equity and bond markets.

The partially convertible rupee opened at 76.54/$1 as against 76.26/$1 at the previous close. The Indian currency, which was last at 76.71/$1, moved in a band of 76.51-76.80/$1 so far in the day.

The yield on India’s 10-year benchmark government bond was last trading 4 basis points higher at 7.44 per cent. Bond prices fall when yields rise.

On Thursday, the Bank of England became the latest central bank to hike interest rates in order to tackle high inflation, raising the country’s policy rate by 25 basis points to 1 per cent.

The move came hours after the US Federal Reserve lifted its benchmark policy rate by 50 basis points amid runaway inflation in the world’s largest economy.

Higher interest rates in advanced economies typically lead to outflows of global capital from riskier emerging market economies such as India.

The US dollar index, which measures the currency against six major rival currencies, was last at 103.67 versus 103.58 at previous close.

The latest hawkish turn by major central banks has exacerbated the selling pressure displayed by overseas investors in Indian equities over the last eight months.

Foreign institutional investors have net sold a whopping Rs 1.3 lakh crores worth of Indian stocks so far in 2022, NSDL data showed. Foreign players have also pared exposure to domestic debt to the tune of Rs 9,155 crore, the data showed.

At 10:30 am the BSE Sensex and the Nifty50 were each trading 1.7 per cent lower.

Even as the Reserve Bank of India announced a surprise rate hike on Wednesday, with US interest rates seen heading much higher from current levels, analysts are pessimistic about the rupee’s prospects.

“After weakness in safer DM, now dark clouds are mounting over riskier EM FX. Oil prices are back in action above $110 as Europe is preparing for an oil embargo on Russia. Fundamentally, the domestic trade deficit widened again above $20 billion and inflation is likely to jump around 8% in April,” CR Forex Advisors MD Amit Pabari said.

“Summing up in short, once FDI flows evaporate from the market and RBI allows a depreciating move, we could see the USDINR pair heading higher towards 77 and 77.50 levels over the short term.”

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