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The Indian rupee today approached $ 77 and some analysts say the Indian currency could hit $ 80 in the coming months. Today, the rupee touched 76.91 at the low of the day before closing at 76.67. Although the rupee has significantly outperformed other emerging market currencies in this coronavirus-related market chaos, selling pressure from India’s outflows will weigh on the Indian currency, analysts say.
But the rate of decline of the rupee could be slow compared to other emerging market currencies due to the sharp drop in world oil prices, analysts say.
“The mass sale of shares is a major threat to the rupee in the future. The FPIs hold $ 378 billion ( ₹Rs 2.9 billion) of Indian stocks, “said Abhishek Goenka, founder and CEO of IFA Global.
Year to date, the rupee has fallen more than 7% against the US dollar after foreign investors withdrew a record amount of more than ₹1 lakh crore from Indian capital markets in March, although selling has slowed this month.
“If coronavirus-induced disruptions are exacerbated, amid fiscal concerns we can see another 3-4% follow-up move in USD-INR to new all-time highs,” IFA Global said in a recent note.
“Lower crude prices should provide a breather for the rupee, but in times of extreme risk aversion, it is often capital market outflows that tend to have a predominant and more pronounced impact,” the advisory said. foreign exchange.
“The current account deficit is likely to narrow significantly as imports would fall more than exports. The RBI has done a reasonable job of containing the rupee thus far. An increase in volatility could lead to a further acceleration in capital market outflows. Therefore, the RBI reaction function would also be extremely crucial, “he added.
The rupee may drop another 4.7% to 80.6 per dollar by the end of June amid capital outflows, according to Bloomberg Economics.
The US dollar has also strengthened against other currencies as investors fled from riskier assets for the world’s most liquid currency.
“Given the uncertainty surrounding the potential duration of the outbreak and closure, we believe the RBI is unlikely to attempt harsh intervention that could risk the rapid depletion of its reserves,” said Abhishek Gupta, economist at Bloomberg in India.
ICICI Securities said: “We believe that this rupee resistance may continue due to the improvement in macros in India. Also, as the RBI has been quite active and announced measures to curb the depreciation of the rupee, the rate of depreciation of the rupee will continue to be quite slow. “
