Value of rupee could hover between 80-81 against USD by Dec, experts warn

In early February when the Russia-Ukraine conflict shook the global financial markets, the rupee was trading at around 74 to a US dollar. But the events following the war have pushed the emerging market currencies into a tailspin. The rupee value is hitting new lows every week. It is currently trading at 78.94.

Will the downward trend continue ?

The rupee is expected to trade in the 80-81 range by the end of December, according to foreign exchange experts.

Abhishek Goenka, founder and CEO of IFA Global, expects the rupee to head towards Rs 81 per dollar by the year-end. According to Anil Kumar Bhansali of Finrex Treasury Advisors, the rupee will fall to 80.50 by September and then stabilise around this level until December 22.

Jigar Trivedi, Research Analyst at Anand Rathi Shares & Stock Brokers, also believes that the rupee is depreciating towards 80.5/81 levels by the year-end.

Leading rating and analytics firm CRISIL expect the exchange rate to settle at 78/$ by March 2023.

"The rupee-dollar exchange rate will remain volatile with a depreciation bias in the near term," said CRISIL in its latest assessment.

There is clearly a downward bias in the short term, but the experts also suggest that the rupee will stabilise by the end of the year.

"The rupee would manage to erase some of the losses in the second half of the year," pointed out Sungandha Sachdeva, VP, Commodity and Currency Research at Religare Broking Ltd.

Sachdeva lists out reasons, like strong long-term fundamentals, political stability, and a large pile of forex reserves, which could likely provide a cushion to the rupee around the crucial 80 mark.

Additionally, the RBI is taking a tough posture to maintain interest rate parity with the advanced economies, in line with other global central banks. In the latest move, the government has also increased the customs duty rate for the import of gold bars from the current rate of 7.5 per cent to 12.5 per cent.

"This change will slightly reduce the outflow on account of gold imports and help provide stability to domestic currency," said Abhishek Jain, Partner, Indirect Tax, KPMG in India.

"We anticipate the rupee to appreciate towards the 77-77.50 range by year-end," said Sachdeva.

Clearly, the short-term outlook for the rupee is not very optimistic. Experts have listed out reasons like higher crude oil prices, a widening trade deficit, outflows by foreign portfolio investors,  rising interest rates by global central banks, and the strengthening of the US dollar.

"More rate hikes are expected not just from the US Fed but other major central banks as well. The surging crude oil prices will continue to pressure the rupee and FII outflows will continue due to the risk aversion in the market, which will lead to further depreciation of the rupee," explains Goenka of IFA Global.

"The RBI will only be able to cap the rupee depreciation till they have sufficient reserves in their kitty as a surplus after protecting their few months of import bills and short-term debt payments, but once the amount goes below it, the RBI may stop the intervention, which would take the rupee further lower," Goenka added.

The sudden depreciation in the currency value is also impacting the country’s foreign exchange reserves. The forex reserves have decreased from a high of $642 billion in September last year to $590 billion.

"Currently, RBI has reserves of $590 billion and another $63 billion in the form of longs. If we consider an import of $60 billion per month, our imports could rise to $720 billion, and these reserves constitute 10 months of imports, which is strong. The extra $63 billion is a safety net that the RBI can use if necessary. RBI can sell to the extent of up to $ 550 billion of the reserves, which is another $ 40 billion," said Bhansali of Finrex Treasury Advisors.
 
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