The rupee is likely to fall nearly 6% in next two months as forex market faces economic uncertainties due to the rising number of cases of coronavirus pandemic across the world. Recent selling by foreign institutional investors (FIIs) has also contributed to the downfall of Indian currency. The currency which hit an all-time low of 76.91 today is likely to depreciate 5.7% further to 80.6 by end-June and by 7.2% to 82.4 by end-September, according to a report by Bloomberg Economics.
A key factor for Indian currency falling to all-time low is FIIs having withdrawn over Rs 12,000 crore from the Indian capital markets in April. The report further said Reserve Bank of India (RBI) is not seen intervening in the forex market to stem the fall in rupee.
RBI intervenes in the forex market by selling dollars which prevents the rupee from falling further. Currently, RBI has $476 billion of reserves which can be used to provide over 12 months of import cover. As per CMIE, India's imports in FY 20 stood at $466.7 billion.
The Indian currency has fallen nearly 7.5% since the beginning of this year. On December 31, 2019 the currency closed at 71.38. Forex traders said the weakness in the rupee was largely due to strengthening of the US dollar against a basket of currencies as investors fled to The rupee had settled at 76.83 against the US dollar on Tuesday.
"The Indian Rupee could start the session weaker against the US Dollar this Wednesday morning as risk-off sentiments in the markets continues to see investors flee to the safe haven US Dollar," Reliance Securities said in a research note.
The report further noted that "Asian currencies have started weak against the US Dollar this Wednesday morning and will weigh on markets".
Foreign institutional investors (FIIs) were net sellers on Tuesday as they sold shares worth Rs 2,095.23 crore.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.04 per cent to 100.30.