Market dips, rupee falls to all-time low as US Fed signals slower pace of rate cuts
The US Federal Reserve on Wednesday cut its benchmark interest rate by 25 basis points to a target range of 4.25- 4.5 per cent. Also, the Fed is likely to only cut interest rates twice next year, down from the previously estimated four. The 0.25-point rate cut, coupled with signals of reduced future cuts, has led to a significant sell-off in global markets, including the Indian market.
The 30-share Sensex dropped 964.15 points, or 1.20 per cent, to end at 79,218.05.
Similarly, the NSE Nifty50 declined by 247.15 points, or 1.02 per cent, to settle at 23,951.70. The continued selling by foreign institutional investors has been a key reason behind the downturn. Talking about the rate cut, VSRK Capital director Swapnil Aggarwal said, “The rate cut could make Indian assets less attractive to foreign investors, potentially leading to capital outflows. The rupee’s continued decline to new lows has further soured sentiment.”
On Thursday, the rupee dropped 14 paise and breached the 85 level to close at an all-time low of Rs 85.08 against the dollar.
A prolonged depreciation of the rupee could widen the trade deficit and heighten inflationary pressures in the future due to higher import costs.
According to Justin Khoo, senior market analyst at APAC (Asia Pacific region), VT Markets, foreign portfolio investments could experience possible outflows, putting downward pressure on market indices.
Since a depreciating rupee raises import costs, it would impact sectors like energy and aviation, while benefiting export-driven IT firms and pharmaceuticals.
According to analysts, investors should avoid panic selling and focus on fundamentally strong securities with minimal exposure to global factors. Maintaining strategic approach will be critical in navigating this period of uncertainty.
