Brexit & Rexit trouble: Having breached the 68-mark versus dollar, will rupee test 70 any time soon?
Brexit has not only spooked Indian markets, but also the rupee which has reacted negatively by diving as much as 96 paise versus the US dollar. Having breached the 68-mark versus dollar, will rupee test 70 any time soon? Currency experts and economists are mixed on how much of a hit will the Indian currency take, given global uncertainty.
Says Jamal Mecklai, MD & CEO of Mecklai Financial, “Global economy has been undergoing a bad time for the last 2-3 years now. Nobody saw Brexit coming, but now that it has who knows if other nations in EU also decide that they can function independently and break away. Donald Trump too may become the US President. All these events will have an impact on the rupee, because it means that the period of global uncertainty will be prolonged.”
Mecklai cautioned, “While India is the best emerging market to put your money in, it is still a risk asset, and people would be averse to taking risks. Also, while Rajan is a smart man and has kept the rupee stable by cleverly building forex reserves, he will also leave in September.” “All these are events that market will take note of. So, in my opinion rupee will continue to face pressure in the coming months,” he told FE Online.
However, Shubhada Rao, Chief Economist at Yes Bank does not see the rupee hitting 70 in this fiscal year. “Rupee has already seen immediate depreciation, and we expect that once the European markets open, rupee will weaken further, but will remain in the 68.25 to 68.50 band versus the US dollar,” she told FE Online. Rao maintains the fiscal year end target range for rupee at 67 to 69. “India’s domestic fundamentals are strong. While FCNRB and US dollar appreciation may cause short term impact in the coming months, we believe that fundamentals will rule,” she said.
“Also, while rupee is reacting negatively to Brexit right now, it will be benefited in the long run by lower commodity prices that will play out as a result of Brexit,” Rao added.
Sajal Gupta, Head Currencies at Edelweiss Securities feels that while things don’t look too rosy for the Indian rupee in the short term, it won’t go beyond the 69 level versus dollar. “Rupee may test 68.50. Over the next one month rupee may depreciate to levels of 69 versus the US dollar, if Brexit’s impact and global uncertainty pans out negatively,” he told FE Online. “However, I don’t see the rupee touching levels of 70. The chances of that happening are just 20%. In my opinion rupee will keep in the 67.80 to 69 band,” he added.
On his part, RBI Governor Raghuram Rajan has sought to assure that the central bank is prepared for any eventuality. “Rupee’s movement today is moderate compared to other currencies,” he has said. RBI Governor Raghuram Rajan also promised full liquidity support to ensure orderly adjustments in the market, even though he maintained that Brexit referendum has caused a major adjustment in asset classes globally with gold and the US dollar going up and the stocks taking a plunge everywhere.