US Fed Reserve on course for most aggressive rate hike cycle S150 bps in 2022, with another 200 bps predicted in the remaining months of 2022.
According to ACUITE Ratings, this would translate to a 350 basis point rate hike in 2022, making it the most aggressive rate hike cycle.
While the INR has declined by 7.3% versus the USD so far in 2022, the rupee has appreciated against numerous other DM currencies during the same period, including the euro, GBP, and JPY.
ACUITE predicts that the INR would stabilise around the Rs 79-81 range by March 2023, with commodity and crude oil prices projected to moderate and the potential of some reversal of the rapid capital outflows experienced over the last six months. With commodity prices likely to moderate and big capital outflows perhaps reversing, a rapid drop from current levels of 80/USD is improbable.
Since the beginning of 2022, the dollar index has increased by about 10%, with a mix of strong inflation in the United States and global risk aversion boosting demand for the world's major reserve currency. According to ACUITE , the Fed has also launched quantitative tightening (QT), which will amplify the impact of monetary policy normalisation and give a supplemental tailwind to the USD.
Because of the extraordinary accommodative policies implemented by developed economies during the pandemic, as well as lingering supply chain bottlenecks, these economies have faced higher inflationary pressures than emerging economies (EM), causing many hard currencies such as the Yen, GBP, and EUR to depreciate significantly against the dollar.
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