₹ may touch 70/$ by December
In a world getting rapidly sucked into a currency war vortex, India seems to be offering some stability, thanks to the relatively low export dependence of the economy and a country that is more inwardlooking than others for its economic activities.
But that does not mean a full-blown currency war will not affect the rupee. If China’s currency devalues, there will be adjustments by other currencies including the Indian rupee, in the region.
A Business Standard poll of 10 currency experts, bank treasurers, and economists predicts the rupee to be almost touching 70 a dollar by December. The pressure should continue till March, depending upon how long the trade war rhetoric continues.
“We are seeing a depreciating bias for the rupee, primarily because
of the trade war. Of course, this may lead to some softening of commodity prices, which is a positive for India, but the US 10-year yield is going up, and we expect foreign portfolio investment and foreign direct investment flows to moderate in a global riskaverse environment,” said Venkat Nageswar, deputy managing director, global markets, State Bank of India.
According to Nageswar, the election year may also bring some amount of volatility in the exchange rate, and so, the rupee could reach 69.50 by December and around 70 by March.
However, most commentators are expecting the trade war rhetoric between the US and China to calm down significantly, and sanctions on Iran to ease in the coming months. The rupee would naturally scale back in those scenarios.
Even as the US dollar index, which measures the greenback’s strength against major global currencies, has crossed 95 now, from the 89 levels in February, the strength of the dollar is unlikely to continue for long, particularly when the US President himself is gunning for a dollar weakness.
The local currency should rebound from its low levels, possible starting in the first quarter of the next financial year. But in the meantime, the possibility of a currency war looms large.
“We have already had a few months of turbulence behind us and it looks like it is likely to continue. But the trade skirmishes evolved into tariff wars and we are possibly at the beginning of currency wars,” Reserve Bank of India (RBI) Governor Urjit Patel said in the post-monetary policy conference on August 1.
“Given this, we have to ensure we run a tight ship on the risks that we control to maximise the chances of ensuring macroeconomic stability and continuing with the growth profile of 7 to 7.5 per cent, going forward. We do have things that are in our favour and if we continue along that path, we ensure we do not add to the global risk profile that would adversely affect us,” said Patel.
The Indian rupee has lost more than 6.5 per cent and has hit its lifetime low of 69.10 a dollar in June-end. It may slip another 3-4 per cent, warned currency dealers, but should remain contained thereafter.
“India is an inward-looking country. The currency war will not impact India as much as the other nations in the region,” said Shashikant Rathi, treasurer at Axis Bank. Rathi expects the local currency to remain rangebound at 68-70 a dollar in this financial year.
Similarly, Harihar Krishnamurthy, treasurer at FirstRand Bank, said since foreign portfolio investors (FPIs) are showing signs of returning to the local market, it should bode well for the rupee. At least, the local currency will not slide sharply against the dollar in the coming months.
In July, FPIs are a net-positive of ~14 billion, and in the first few days of August so far, FPIs have put in ~16 billion in Indian markets.
“India is in a much better position than the other nations in the region. Our current account and fiscal deficit are more or less under control. The recent rate hikes maintain the rate parity with the US and the trade war is actually good for India. The supply chain may shift from China,” said Satyajit Kanjilal, managing director (MD) of Forexserve. Kanjilal expects the rupee to be around 67.50-68 level by December, and at 66-67 a dollar by March-end.
The US rate hike, though, will create pressure for the local currency, and the rupee will also have to maintain its parity if the Chinese currency depreciates, said Samir Lodha, MD at QuantArt Market Solutions.
However, “India’s current account deficit is still within manageable levels as long as oil is within $90 per barrel. And the RBI and the government have enough ammunition to stabilise the currency if they want to,” said Lodha, adding he expects the rupee to slide to 71 a dollar by December.