The rupee has logged year-to-date losses of more than 13 per cent against the strengthening US dollar after trade concerns and firming up crude oil prices. It has dropped close to 6 per cent since August.
The rupee is expected to remain under pressure in near-term as the downside risks to the currency are largely driven by the external factors and will take some time to subside, says a report. According to Dun & Bradsteet’s latest economy forecast, elevated crude oil prices, strengthening of dollar, geopolitical tensions and economic sanctions will continue to impart depreciation pressures on the rupee.
“Elevated risks and heightened geopolitical uncertainty, trade wars and economic sanctions along with reworking of trade treaties will continue to impact emerging market currencies, including India,” Dun & Bradstreet India Lead Economist Arun Singh said in a research note.
At this time of global uncertainty along with tightening dollar liquidity in the global market, measures to attract foreign investors to support the rupee might have limited impact, at least, in the short-term. The rupee has logged year-to-date losses of more than 13 per cent against the strengthening US dollar after trade concerns and firming up crude oil prices. It has dropped close to 6 per cent since August.
The rupee Wednesday rebounded by 61 paise to close at 72.37 against the US currency. On the government’s recent initiatives to support rupee, the report said the measures were “initial” and more is expected. Singh further noted that “if the government undertakes measures like curbing non-essential imports it will be favourable for the domestic industry and the current account balance but at the same time it might send out protectionist signals”.
D&B expects the rupee to be around 72.3 – 72.5 per USD during September.
“The fact that rupee remains undervalued as per the 6-currency trade based REER (real effective exchange rate) index and there are adequate forex reserves to support rupee, the current level might not be the new normal for rupee,” Singh added.