Indian rupee dips against UAE dirham on aggressive US central bank stance on rate hikes. Image Credit: Reuters

Dubai: The Indian rupee declined to 20.28 against the UAE dirham on Thursday, tracking the strength of the US dollar.

The drop is in line with stocks worldwide declining following US policymakers’ talks to reduce the top central bank's balance sheet at their December meeting, when they also decided to accelerate finishing their bond buying programme.

Investors saw the minutes from the US Federal Reserve meeting as a sign that the key lender might hike interest rates faster to cool inflation and this could lead other central banks in economies elsewhere to follow suit, Dubai-based forex traders noted.

Indian rupee
The Indian rupee declined to 20.28 against the UAE dirham on Thursday, tracking the strength of the US dollar.

Low rates no longer needed

According to minutes from the US Fed’s December 14-15 policy meeting, policymakers believe the top largest economy’s job market is nearly healthy enough and ultra-low interest rates are no longer needed.

At the interbank foreign exchange, the rupee opened at 74.44 against the US dollar, registering a decline of 6 paise from the last close. On Wednesday, the rupee surged 20 paise to close at 74.38 against the US currency.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose by 0.02 per cent to 96.19.

Moreover, growing concerns over the Omicron variant of coronavirus and its impact on economic recovery as well as firm crude oil prices weighed on the local unit. Global oil benchmark Brent crude futures fell by 1.35 per cent to $79.71 per barrel.

Indian rupee falls 47 paise to 69.82 against US dollar in early trade
Image Credit: Pixabay

INR steadily declines since early December

Analysts attributed the Indian rupee’s new-found strength seen since early December to the US dollar’s weakness, which is directly caused by the increased number of Omicron cases in the US. The dollar index has slipped to 95.90 from 96.70 levels.

India too is dealing with more cases of Omicron infections being reported, and forex traders currently evaluate how this is partly reflected in the renewed pressure on the rupee.

Although the currency firmed up by the end of December, the month recorded higher rupee remittances from the UAE. In the first two weeks of the month, average volumes a day at leading exchange houses were over Rs200 million (Dh9.87 million).