Rupee hits fresh low of 96.54 against dollar

Currency dealers said the central bank’s intervention dollar sales, while not aggressive, capped further depreciation. 

Since the onset of the war on February 28, the rupee has declined 6.12%. So far in the calendar year, it has fallen 7.4%. 

“Market now expects the current-account deficit to exceed 2% from about 1.3% of GDP and the import bill to be higher amid elevated oil prices. Repeated delay of the ceasefire have left sentiment more fragile. If the current conditions persist, the rupee is likely to reach 97 within roughly two weeks,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors LLP.

With the West Asia conflict ongoing and oil trading near $110 a barrel, the rupee will continue to be under pressure, said market participants. 

“We expect the currency to keep weakening, and it is beyond the oil prices. Even before the conflict-driven spike in oil, capital inflows were only marginally sufficient to cover the current account; in other words, there has been a structural shortfall in capital flows,” said Indranil Pan, chief economist, YES Bank.

He added that it is very difficult to predict a level for rupee now as things are very uncertain. “However, the RBI will likely step in to moderate the pace of depreciation to avoid disruptive shocks, but it may not fully stop downward pressure if the situation warrants.” 

Bhansali added that he will not rule out the rupee touching 100 against the dollar over the next few months, given weak inflows, exporters delaying repatriation, and foreign portfolio investors withdrawing funds. 

The market awaits some measures from the RBI and government to increase the dollar supply. Reports suggest that the government has already considered measures such as lowering tax for foreign investors buying Indian bonds.