US rate hike concerns push Rupee to 26-month lower

The Indian currency dropped to 26-month low following the heavy offloading in Rupee. The fears about possible rate hike by US Federal Reserve, could result in heavy fund outflows from emerging markets such as India.

It puts pressure on Rupee, which fell 5.5 percent against the US dollar this year so far. There are increasing concerns in Indian market that forcing institutional investors (FIIs) may offload in domestic stock markets once US Federal Reserve hikes interest rate.

The overseas investors preferred to offload their holdings in Indian stocks and bond markets in the wake of rising probability of interest rate hike by US Federal Reserve. If US Fed increased interest rate, then it'll be expensive for foreign investors to hold investments in Indian currency.

According to reports by International Business Times, the Indian currency against the US dollar eased to 66.89, the lowest since September 2013. The Indian currency is reeling under pressure as positive US economic data puts more pressure on Rupee.

The positive economic indications further enable the US Federal Reserve to tighten the monetary mechanism. The rate hike by US Federal Reserve may result in heavy fund outflows from emerging markets such as India.

Reserve Bank of India (RBI) has intervened in the foreign exchange (forex) market in support of Rupee. The surging US dollar is keeping the pressure on currencies of many emerging economies.

The Indian currency is the worst performer in Asia as it suffered the most against the US dollar prompting the Indian central bank to offload dollars into the forex market.

Abhishek Goenka, MD and CEO, Indiaforex Advisors Ltd, said, "We're buying imports, but have advised our exporter clients to hold."

He also opined in a report published by Business Standard, that Indian currency may fall further if US Fed hikes interest rate. The slowdown in China's economy is also impacting. When China readjusted its currency ban, the rupee fell three percent to keep the competitiveness of Indian exports.

The market players and analysts fear that If US Federal Reserve hikes interest rate in December then it'll force FIIs to dump their holdings aggressively. FIIs sold $962.08 million worth shares during 30 October-24 November.

The Indian currency against the US dollar fell 5.5 percent so far in 2015. This eroded gains from cheaper crude oil prices for India, which heavily depends upon oil imports.

Investors are cautious ahead from major economic data scheduled for release on Monday. The government will release Gross Domestic Product (GDP) numbers for quarter ending September and fiscal deficit data for October. According to Bloomberg's poll, the Indian GDP is forecast for 7.3 percent growth rate. If the growth rate is slower, then it would affect FII investments.