The rupee weakened only a touch on Friday after the dollar’s rally halted as investors pulled back in stocks, despite a red-hot US inflation reading on Thursday.
Bloomberg quoted the rupee as last at 82.3875 after opening at 82.2738, as against its previous close of 82.35 and below a record low of 82.6950.
PTI reported that the domestic currency weakened by 12 paise to close at 82.36 against the US dollar on Friday.
The greenback has been on a tear this year as the Federal Reserve aggressively raised interest rates to control inflation, which attracted capital back to the United States, and concerns about the world economy also dented demand for the dollar. increased.
However, stronger-than-expected inflation data on Thursday unexpectedly led to a rise in global stock markets and a fall in the value of the dollar.
The dollar index rose marginally to 112.62, down 0.6 percent from Thursday, as investors ignored data showing that US consumer prices rose more than expected in September.
In a report released on October 10 by Deutsche Bank analysts led by chief economist Michael Spencer, they predicted that pressure on emerging market (EM) currencies and bonds would last until at least mid-2023. After that, according to a Bloomberg report, the strength of the dollar may decline.
“The relevant question then is whether this tension will spread to the core of the asset class – the large emerging market sovereigns that dominate investors’ portfolios,” the Deutsche strategists wrote.
The Bloomberg report noted that refinancing costs for emerging market governments, which took out large loans in dollars when interest rates were low, were in keeping with the debt crisis in Asia in the 1990s and concerns about a wave of defaults. are uncovering.
Investors are being reminded earlier by a spike in yields from the emerging debt crises, particularly one that engulfed Asia in 1997 and saw country after country default as domestic currencies collapsed.
The phrase “original sin”, which economists originally used to define emerging countries’ reliance on foreign currency debt, is forcing the unpleasant awareness that large parts of the developing world are still plagued by it.
“There will be countries that will default and restructure debt,” said Lisa Chua, a New York-based portfolio manager at hedge fund Man Group. Bloomberg.
While the rising debt burden is stifling investment and stifling growth, “it is more challenging for many emerging markets to grow fast enough to stabilize their debt,” she said.