Even as the rupee has fallen over Rs 5 in the current calendar year so far and foreign investments have been witnessing a continuous outflow for the past few weeks, the RBI has recently introduced a slew of measures to attract foreign investments and hence bolster the domestic currency. Experts said that despite the RBI move, the rupee is likely to depreciate further in the short term before starting recovery.
Sujan Hajra, chief economist and executive director of Anand Rathi Shares & Stock Brokers, said, “On aggressive monetary tightening, substantial withdrawal of liquidity infused during the pandemic period and phasing out of fiscal stimulus measures, the global growth is likely to decelerate sharply in the coming quarters. This has created the fear of global recession… Geopolitical uncertainties and pandemic-led periodic lockdown in China continue.”
Hajra added that these factors are leading to safe-haven demand for the US dollar, which in turn, is resulting in the appreciation of the American currency against almost all currencies. “In view of these and also the challenges being faced by India’s balance of payment, it is likely that the rupee would depreciate further against the US dollar for the next three months.”
The outflow of foreign investments continues to adversely affect the rupee, with the domestic currency falling more than Rs 5 this calendar year so far. FPIs have dumped Indian shares worth Rs 50,203 crore in June. It is the highest net outflow in over two years.
Crisil Chief Economist D K Joshi also expects the rupee to continue to depreciate in the short term till October due to the tight monetary policy in the US, which is leading to capital flight from India. “The rupee will first depreciate till October and then start strengthening to reach the 78 level against the dollar till March 2023.”
The Reserve Bank of India (RBI) on Wednesday unveiled fresh measures, including easing rules for FPIs, interest rates cap removed for FCNR and NRE term deposits and raising limits on external borrowings. The measures are aimed at stabilising the rupee and attracting foreign investments.
The central bank’s latest measures will stabilise the rupee which touched multiple record lows against the US dollar, Mehta Equities Vice-President (Commodities) Rahul Kalantri said adding that “but this is a short-term measure to control the action”.
Reliance Securities Senior Research Analyst Sriram Iyer said some of the RBI measures could lead to foreign fund inflows and arrest the fall of the rupee. “However, it will be difficult to find out about the quantum of flows that come into the markets but the measures could provide some stability to the rupee. The RBI has taken this measure to temporarily pause dipping into the forex reserves which had witnessed a significant fall over the past few months.”
He added that the steps taken by the RBI could stabilise the local unit as RBI will continue to remain pro-active when needed. “However, we expect that rupee could continue to weaken towards 79.50-80 per dollar by July end weighed down by global macro-economic factors. By September-end, the rupee could test 81.00-81.25 per dollar by September-end.”
Megh Mody, commodities and currencies research analyst at Prabhudas Lilladher, also the rupee to be in the depreciating mode for the next three months and might touch 80. “With the recent data of job numbers improving, US Fed is still considering inflation numbers to subside. As far as it is burning, the hike in interest rates are here to stay that will pressure the rupee in coming quarter.”
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