New Delhi: The worst is yet to come for the Indian Rupee According to analysts and futures markets, it hit a historic low after its fall in May.
According to analysts at UBS AG, the currency may fall between 79 and 81 per dollar in the next few months. Nomura Holdings Inc. and Bloomberg Economics. Forwards too are pricing in a similar weakness to the rupee.
The forecast of a recession – in which the rupee will depreciate by up to 4% from current levels – stemmed from a decline in India’s external finances. Higher oil prices threaten to widen the current account deficit to at least 3% of GDP, while accelerating outflows from its equity markets, according to UBS.
“It is not a big question for USD/INR to move from here to 80 in the next few months,” said Rohit Arora, emerging markets Asia strategist at UBS. “Nor do I think 80 is a runaway depreciation by any metric. It is a very minor adjustment of currency with deteriorating fundamentals.”
The rupee depreciated nearly 1.6% in May, the biggest fall among emerging Asian currencies, after Reserve Bank of India Governor Shaktikanta Das said the central bank would not allow a rapid depreciation of the currency. He said that the current account deficit can be covered comfortably this year also.
The central bank has about $600 billion in foreign exchange reserves and is using this pile to remove any volatility. Rupee traders will wait for their monetary policy review on Wednesday, where interest rates are expected to rise after the policy hike in May.
Bloomberg Economics estimates that the rupee will fall to $81 per dollar by the end of November. Nomura Holdings Inc sees the currency at 79 as of the end of June, while standard Chartered The third quarter also sees similar levels. The currency had closed at 77.6325 on Friday.
The debate over how much depreciation the RBI will allow also stems from the use of currency as a policy tool. Some argue that the central bank will not tolerate a weaker rupee when inflation has become its primary focus. Another argument is that the rupee is still overvalued in a trade-weighted context and some downside is not necessary.
“We have been slightly more bearish than consensus as we feel the underlying balance of payments dynamics has deteriorated significantly,” said Divya Devesh, head of ASEAN and South-Asia FX research at Standard Chartered in Singapore.
According to analysts at UBS AG, the currency may fall between 79 and 81 per dollar in the next few months. Nomura Holdings Inc. and Bloomberg Economics. Forwards too are pricing in a similar weakness to the rupee.
The forecast of a recession – in which the rupee will depreciate by up to 4% from current levels – stemmed from a decline in India’s external finances. Higher oil prices threaten to widen the current account deficit to at least 3% of GDP, while accelerating outflows from its equity markets, according to UBS.
“It is not a big question for USD/INR to move from here to 80 in the next few months,” said Rohit Arora, emerging markets Asia strategist at UBS. “Nor do I think 80 is a runaway depreciation by any metric. It is a very minor adjustment of currency with deteriorating fundamentals.”
The rupee depreciated nearly 1.6% in May, the biggest fall among emerging Asian currencies, after Reserve Bank of India Governor Shaktikanta Das said the central bank would not allow a rapid depreciation of the currency. He said that the current account deficit can be covered comfortably this year also.
The central bank has about $600 billion in foreign exchange reserves and is using this pile to remove any volatility. Rupee traders will wait for their monetary policy review on Wednesday, where interest rates are expected to rise after the policy hike in May.
Bloomberg Economics estimates that the rupee will fall to $81 per dollar by the end of November. Nomura Holdings Inc sees the currency at 79 as of the end of June, while standard Chartered The third quarter also sees similar levels. The currency had closed at 77.6325 on Friday.
The debate over how much depreciation the RBI will allow also stems from the use of currency as a policy tool. Some argue that the central bank will not tolerate a weaker rupee when inflation has become its primary focus. Another argument is that the rupee is still overvalued in a trade-weighted context and some downside is not necessary.
“We have been slightly more bearish than consensus as we feel the underlying balance of payments dynamics has deteriorated significantly,” said Divya Devesh, head of ASEAN and South-Asia FX research at Standard Chartered in Singapore.