Will Rupee Slide Past 80 A Dollar This Year? Some Analysts See A Possibility - Financial Daily News Site

Will Rupee Slide Past 80 A Dollar This Year? Some Analysts See A Possibility

Indian rupee could slide further after hitting a historic low last month, according to analysts. The currency may drop to between 79 to 81 per dollar over the next few months, according to analysts from UBS AG to Nomura Holdings Inc. and Bloomberg Economics. The rupee is currently at 77.63 a dollar, after hitting a low of 77.92 last month. Year-to-date, the dollar is up over 4.4% against the rupee.

Surging crude prices, pullout by foreign portfolio investors from Indian equity markets, broad dollar strength and firm US bonds are among the reasons for weakness in the rupee.

“In May FPIs continued heavy selling in equity, particularly in financials and IT. Total selling in equity in May amounted to 45,276 crore. This takes the total FPI selling in 2022 till May 31st to 1,73,799 crore. This massive FPI selling is the major factor for the weakness in the Indian equity market,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“However, there are signs of FPI selling exhaustion. In the early days of June, FPI selling is in very small amounts. If the dollar and the US bond stabilises, FPI selling is likely to stop and may even reverse. On the contrary, if US inflation remains elevated and dollar and bond yields continue to rise, FPIs may resume selling. US inflation data is the key,” he added.

US consumer inflation data and Reserve Bank of India monetary policy decision are both scheduled this week. The RBI has foreign exchange reserves of nearly $600 billion and has been using this pile to smooth out any volatility.  The central bank is expected to raise interest rates after an out-of-policy hike in May.

“The RBI maintains a hefty stockpile of foreign exchange reserves and is expected to use these asset buffers to limit rupee volatility. going forward, we expect intervention efforts to continue to keep rupee depreciation orderly. The Indian government has taken a raft of measures on the fiscal side to rein in inflation. These measures from the fiscal side mean that the monetary policy would have to do the lesser heavy lifting,” IFA Global said in a note. 

In a recent interview RBI governor Shaktikanta Das said: “I’m telling you that we have no specific level in our mind. The rupee is market-determined. But we will prevent excessive volatility. we will not allow a runaway sort of depreciation of the rupee.”

Crude oil prices surged more than $2 today after Saudi Arabia raised prices sharply for its crude sales in July, an indicator of how tight supply is even after OPEC+ agreed to accelerate its output increases over the next two months. Brent crude futures were up $1.80, or 1.5%, at $121.52 a barrel.

Higher oil prices threaten to widen the current-account deficit to at least 3% of the gross domestic product, compared to a 2% sustainable level, according to UBS, even as outflows from its equity markets accelerate.

“A grind higher for USD/INR from here toward 80 in the next couple of months is not a big ask,” said Rohit Arora, emerging markets Asia strategist at UBS told Bloomberg. “Nor do I think 80 is a runaway depreciation by any metric. It’s a very modest adjustment of a currency with deteriorating fundamentals.”

Bloomberg Economics predicts the rupee will fall to 81 a dollar by the end of November. Nomura Holdings Inc. sees the currency at 79 by end June, while Standard Chartered Plc also sees a similar level by the third quarter. (With Bloomberg Inputs)

 

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