The rupee has witnessed its worst fall in 2018 in over five years — a meltdown good enough to unnerve market sentiment — declining approximately 15% from its 63/USD level in January to above 74/USD level in October. At the current levels, the Indian rupee is the worst performer among Asian currencies this year and is only ahead of the Argentine Peso, Turkish Lira and South African Rand. Breaking all records, the rupee breached the 74/USD mark for the first time on October 5 and hit a record low of 74.4825 against the greenback on October 11. So, is it likely for the rupee to hit 75/USD, or even 80/USD very soon?
Both the US dollar and crude oil prices retracted last week, giving some respite to the rupee. Another relief came in the form of the government’s move to raise import duties on telecom equipment and components, riding on which the Indian rupee posted its first weekly gains in seven weeks. But woes are not over for the rupee here. The twin movements of the dollar and crude will continue to influence the rupee going forward, asserts Hiren Sharma of Portia Advisory Services LLP.
“My personal sense is that the rupee is already in an exaggerated zone. And it can only improve from here, but with the help of RBI/government’s visible measures, which till now have only been discussed or have come out with those that will yield only from long-term perspective,” Sharma told FE Online. “Breaking of from 75 levels can push the USDINR towards 78/$ or even 80/$ for that matter,” he added.
RBI’s October monetary policy comments also acted as another negative for the rupee, an economist points out. “Even as rupee had made a recovery last week tracking easing crude oil prices and government verbal intervention and additional policy moves on import duties front, fundamentally rupee has taken a beating as the central bank reiterated in its October policy that inflation management remains its sole policy objective and policy action will not be premised on anchoring the currency,” said Madhavi Arora, Economist, FX & Rates, Edelweiss Securities Ltd.
Notably, the rupee had breached the 74 per US dollar for the first time after the RBI kept the repo rate unchanged on October 5 and changed its stance from “accommodative” to “calibrated tightening”.
“The RBI subtly suggested that FX markets are fluid and should let rupee find its fair equilibrium and let the trade-weighted exchange rate acts as a natural stabilizer. However, any imported inflation pressures arising out of currency depreciation would impact RBI’s reaction function,” Arora told FE Online. “Besides, with FPI now taking a sanguine view on India equities after having consistently exiting the debt segment since beginning of FY, further pressure is building on INR. Additionally, fears of fiscal slippage would further weigh on Indian asset classes,” she added.
So when will rupee touch 80 against the US dollar?
According to Rushabh Maru, Research Analyst, Anand Rathi Shares and Stock Brokers, the rupee may touch the 75/$ mark by the end of October or mid-November. “For 2018-end, the rupee may touch 77 levels and by end of the current financial year the rupee may weaken to 80 levels,” Maru told FE Online.
While some appreciation in the rupee is expected in the coming sessions on account of a weakening dollar and declining crude oil prices, it will be temporary, Maru said. “The rupee may resume its broad depreciation trend soon. Even though the crude oil prices have fallen recently, the declining trend will be temporary. As US sanctions on Iran will begin from 4th November, crude oil prices may resume its broad bullish trend. Hence once crude oil prices rise, the rupee may come under pressure. FII outflows are continuously rising from the debt and equity market,” Rushabh Maru added.