Rupee opens weaker at Rs 87.97 against dollar after US Fed rate cut

The Indian rupee opened lower at Rs 87.97 against the US dollar on Thursday, September 18. The weakening followed after the US Federal Reserve decided to cut interest rates by 25 basis points. The opening recorded a decline from the previous session's close of Rs 87.82.

What did the US Fed announce?

On Wednesday, the Fed announced its first rate cut since December, lowering the benchmark federal funds rate by 25 basis points (bps). This move was aimed to support economic growth amid easing inflation and signs of softness in labor market. The Fed officials have signalled that two more rate cuts are possible before the end of 2025, indicating a dovish stance in the face of economic uncertainty.

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Why did the rupee weaken?

The weakening of the rupee comes after the Indian currency recorded its best start in 2 weeks, up 23 paise on Wednesday's session. It also rose to its highest level in nearly three weeks.

Traditionally, a rate cut in the US tends to lower returns on dollar assets. A lower return means less dollar demand or a weaker greenback and more attractive emerging market currencies, including the rupee. However, the immediate reaction of the Indian rupee has been mixed.

Despite a favourable outlook for the dollar, the rupee opened on a lower note, following the Asian peers in the early trade. Analysts have attributed this to a compound effect of risk aversion globally, higher crude oil prices, and fears of sustained foreign portfolio outflows.

The Reserve Bank of India (RBI) is also expected to remain active in the forex market to curb excessive volatility. Domestic inflation data, crude oil movements, and the pace of foreign capital inflows will be key determinants for the rupee’s movement in the coming weeks.