Rupee likely to remain near record low in near future: Report

Bengaluru:

India’s rupee will offset some of its recent losses against the dollar in the coming year, according to a Reuters poll of FX strategists, as the interest rate gap is set to widen along with the worsening current account deficit.

The currency has declined every month this year – its longest losing streak in nearly four decades – as the US Federal Reserve has adopted a far more aggressive policy than its peers, including the Reserve Bank of India, pushing the greenback to a two-decade high. level has been reached. ,

With more hikes coming from the Fed, including a possible fourth straight 75-basis point increase later on Wednesday, and the RBI expected to be more subdued, the policy divergence will probably extend further. This means there is no respite for the sinking rupee, at least in the near term.

With the RBI burning its dollar reserves to support the currency, despite a more than 10 per cent fall against the dollar this year, the rupee will trade at 82.5 per dollar in three months, where it was on Tuesday, October 28. As of November. 1 Reuters poll of 26 FX analysts.

The rupee touched a lifetime low of 83.29/$ on October 20, but the average outlook of 13 analysts answering a different question showed it to trade as weak as 83.50/$ before the end of the year. for will cross it. The forecast was between 83.00-84.20/$.

“The Fed’s communication on Wednesday is likely to set the course for the dollar and consequently the rupee in the coming weeks,” said Sakshi Gupta, principal economist at HDFC Bank.

“Continued flamboyant commentary may put pressure on the rupee,” he added.

This means that the RBI, which has hiked its repo rate by 190 basis points this year and is expected to add only 50 basis points more in the current tight cycle, will likely further reduce its reserves.

It was already down by $118 billion from a peak of $642 billion a year ago, according to a separate Reuters poll, forecast to fall to $510 billion by the end of the year.

Already elevated oil prices – a major factor behind the worsening of India’s current account deficit – are unlikely to ease any time soon, putting further pressure on the currency.

The current account gap was expected to close at the widest level in a decade of the financial year.

Against that backdrop, the rupee was expected to rise only 1.5 per cent to $81.5/$ in the coming year, which was nowhere close to reversing this year’s double-digit losses.

More than a third of strategists expect the currency to hit an all-time low at some point in the next 12 months.

“USD/INR may further move towards 85 due to the strength of USD and effective exchange rates need to reflect the wider funding gap,” said Samiran Chakraborty, India’s chief economist at Citi.