The Indian rupee on Tuesday crashed to a fresh 15-month-low, losing about 225 paise against the dollar in last one month following a rally in the international crude oil price.
The Indian rupee on Tuesday crashed to a fresh 15-month-low, losing about 225 paise against the dollar in last one month following a rally in the international crude oil price. As the factors that impact rupee seem to be working against it, the question now is will the rupee touch 70 against the dollar. Analysts say that given the market sentiments, the possibility of breaching the 70-mark is strong.
The two biggest reasons for fall in rupee are surging oil prices inflating the bill of the government and the cynical trend witnessed in Foreign portfolio investors (FPIs) investments since the beginning of this year. “Will rupee hit 70? Nobody can say. The last time it was there at 68.5, it returned back like a scorning cat. However, with crude oil price surging and higher government debt, it could hit 70 this time,” Jamal Mecklai, CEO, Mecklai Financial Services told FE Online.
The concerns are also regarding the fiscal deficit and current account deficit, and dollar strength. “The rupee is facing downside risks on account of the crude price hike, concerns regarding the fiscal deficit and current account deficit, and dollar strength. In the period ahead, these are the factors that may likely keep rupee to 67-70 levels,” Anis Chakravarty, Lead Economist, Deloitte India told FE Online.
With negative sentiments taking over the market, analysts also expect some intervention from the government and the Reserve Bank of India to contain the value of rupee around this level. RBI interventions in the past have helped stabilize rupee in such scenarios. We expect that any measures by RBI this time will be data-driven, including forex reserves and possible impact on deficit and inflation,” Anis Chakravarty said.
The rupee depreciation can be expected to boost exports as the rupee was “overvalued” as compared to some of India’s key export competitors. However, if the outward shipments fail to take off at the desired levels and with imports bill inflating, continued depreciation may put further pressure on the twin deficits, analysts said.
After the two day fall, importers rushed to cover their obligations while exporters cancelled their previously booked contracts in a hope of further fall in the rupee.