By Elton Gomes
Factors such as the strengthening of the United States dollar, lack of foreign investment, and concerns related to rising crude oil prices are likely to keep the rupee under pressure this week, and it might fall past the 70/dollar mark according to experts. The Reserve Bank of India (RBI) will certainly be uncomfortable with such an expensive rupee and will strongly defend the currency. Bankers have said that 69.30 remains an important level for the rupee.
On June 28, the rupee fell to an all-time low of 69.10 against the dollar. On July 5, it closed at an all-time low of 68.95. “Concerns over widening current account deficit due to higher crude oil prices and demand for dollar from oil companies and general importers is impacting the rupee. It may briefly touch the 70 mark this week but would not remain there,” a senior bank official said in an interview with Live Mint.
Aditi Nayar, principal economist at ICRA, an independent and professional investment information and credit rating agency, stated that in the near term, the outlook for the Indian rupee is likely to be dominated by the sentiment towards the U.S. dollar, the risk of trade wars, movements in the Yuan, and the trend recorded by crude oil prices.
It has been reported that the sentiment in the foreign exchange market was weakened by apparent comments from government officials that the rupee needs to retain trade-weighted parity against competing exporter nations, particularly since a trade war looms large.
Anand James, chief market strategist at Geojit Financial Services Ltd said that, given the current scenario, the prospects of rupee will be dependent on the amount of private investment coming in.
Analysts are of the opinion that the trade war between Washington and Beijing is putting pressure on all Asian currencies, but the worst affected is the Indian rupee. Due to concerns over the trade war, foreign portfolios inflows into the domestic equity market have decreased, a banker said. News agency PTI cited a report by Bank of America-Merrill Lynch (BofA-ML) and said that rate hikes by the RBI could be affecting the rupee.
After the RBI hiked the repo rate on June 6, the rupee has depreciated by 1.9%. It was reported that a delay in foreign portfolio investment (FPI) flows till December might cause the rupee to fall beyond 70 against the dollar, and it is estimated that the RBI may issue NRI bonds. In its report, BofA-ML said, “ We think the RBI may issue NRI bonds to raise $30-35 billion to comfort the forex market, if FPI flows do not revive by the December quarter,” as per a PTI report.
The report further said that if lack of FPI flows compel the RBI to sell $20 billion, it would have to conduct open market operations worth $50 billion to restrict lending rate hikes.
Elton Gomes is a staff writer at Qrius.