Rupee likely to drop further to 82 to the dollar in short term: experts

Rupee likely to drop further to 82 to the dollar in short term: experts

Rupee faces risk of further decline to 82 against USD in short term: experts

New Delhi:

The Indian rupee could depreciate further to 82 to the dollar in the near term due to the widening trade deficit and the US Federal Reserve expecting aggressive rate hikes later this week to rein in record inflation, analysts said. economists.

There is widespread speculation that the US Fed, at its July 26-27 meeting, may raise the interest rate by 50-75 basis points, which could lead to capital flight from emerging countries like the United States. ‘India. With the outflow of dollars and the high level of crude oil prices, the rupee would experience further depreciation.

Last week, the rupiah depreciated to an all-time low of 80.06 per dollar.

Economists are of the view that the rupiah, after hitting an all-time low, could settle around 78 to the dollar by March next year with stability around crude oil prices and likely improvement of the geopolitical situation.

“Overall, what we had been pricing in is that the rupee could settle somewhere around 79 to the dollar. That will be the average price for the whole year…in the current depreciation cycle, the rupee could fall above 81/USD in the current political situation,” India Ratings & Research senior economist Sunil Kumar Sinha told PTI.

Amid a rebound in crude oil prices and the expectation that the US dollar will remain relatively strong for the foreseeable future, the ICRA expects the rupiah to weaken to 81/USD in the second quarter of the 2023 financial year.

“Going forward, global sentiment and the direction of foreign portfolio investment (REIT) flows will determine whether the Indian rupee continues to depreciate for the rest of the year, or whether US recession fears end. by stopping the strength of the dollar,” said CIFAR’s chief economist, Aditi Nayar. .

According to Nomura, the rupiah could reach as high as 82 in the July-September quarter due to multiple headwinds including weakening Indian BoP momentum and Fed hikes over the course of the year.

CRISIL expects the rupee to come under pressure in the short term and the rupee-dollar exchange rate to remain volatile with a short-term depreciation bias due to the widening trade deficit, FPI outflows and the strengthening of the US dollar index due to rate hikes by the US Fed and safe haven demand for the dollar amid geopolitical risks.

“However, the pressure may ease towards the end of the fiscal year as crude oil prices are expected to decline and the Fed slows its rate hike spree. As a result, we expect the exchange rate to stabilize at 78 /$ by March 2023, compared to 76.2/$ in March 2022, with a lot of volatility until then,” said CRISIL lead economist Dipti Deshpande.

The trade deficit hit a record $26.18 billion in June due to more expensive imports of crude oil, coal and gold. The deficit widened to $70.80 billion in April-June of this fiscal year.

Last week, RBI Governor Shaktikanta Das said the central bank had no particular level for the rupee but wanted to ensure its orderly development and stressed zero tolerance for volatile movements and bumpy INR against the dollar.

The governor had also indicated that the central bank would use foreign exchange reserves when needed to deal with currency volatility.

“After all, that is precisely why we had accumulated reserves when capital inflows were strong. And, may I add, you buy an umbrella to use when it rains!” Mr. Das.

The country’s foreign exchange reserves fell by $7.541 billion to $572.712 billion in the week ending July 15.

Following further intervention by the government and the RBI to stem the fall of the rupee, EY India’s chief policy adviser, DK Srivastava, said the Center may temporarily reduce customs and excise duties on certain products.

Furthermore, he said, India can take a more aggressive approach to internationalize the Indian rupee so that it can be used both as a reliable currency for trade and as a currency that many developing countries can keep as foreign exchange reserves.

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