The Indian rupee, which has registered a fall of 12% this year, will hover near the 70-mark against the US dollar for almost a year from now, a Reuters poll has shown.
The Indian rupee, which has registered a fall of 12% this year, will hover near the 70-mark against the US dollar for almost a year from now, a Reuters poll has shown. The rupee breached 70 a dollar mark on August 14 for the first time in India’s history.
The domestic currency is witnessing a relentless fall as rising crude oil prices and a weak trend in emerging market economies are weighing in on sentiments. The rupee will hover near record lows and will pare only some losses in next one year on worsening trade balance, a Reuters poll of 40 foreign exchange analysts showed. The rupee on Thursday breached 72 against the dollar in intra-day trade.
“The pair is already trading at 72 level…I see no strong reasons why this trend should reverse soon, unless for a sharp weakening of the dollar which is not our house view for the near-term,” Reuters quoted ING economist Prakash Sakpal as saying.
Since the fall in the rupee is largely in consonance will the US dollar strengthening against all currencies, SBI chief economist Soumya Kanti Ghosh said, the Indian currency cannot be immune from such factors and that the “pain might not be just over yet”.
The continuous fall in the rupee has triggered the speculation that the Reserve Bank of India may take the “orthodox” step of hiking interest rate to tame in depreciation in the currency. However, analysts are divided over the course of the rupee value in future.
Many analysts say that depreciation in the Indian currency is long overdue and needs some modest weakening, while others have pinned hopes to the RBI for necessary intervention. With the rupee losing its value every day, India’s foreign exchange reserves are expected to provide some respite. The forex reserves are good enough to cover imports for eight months, a leading bank analysed.
Meanwhile, on the back of depreciating rupee, the yields of India’s benchmark 10-year bonds rose to 8% on Wednesday, which could also add to the government’s fiscal costs too. Even as some market watchers have said the depreciation in the rupee is a cause for worry, they have warned against widening current account deficit (CAD).
In July, India’s trade deficit rose to a five-year high of $18.02 billion due to high oil import bill and jump in the gold purchases, putting pressure on CAD. Even as the finance ministry has expressed confidence in meeting the fiscal deficit target of 3.3% this financial year, it has said that there could be some slippage on CAD. Moody’s expect India’s CAD to widen to 2.5%, while Nomura expects it to be 2.8% of the GDP in FY18 as against 1.5% in FY17.