‘Rupee unlikely to get any tailwind this fiscal’

MUMBAI: The rupee, which has plumbed the 80-level against the US dollar, is unlikely to get any tailwind this fiscal and may fall further in the medium term due to higher crude prices and imports, says a report.

In the report on Thursday, Swiss brokerage UBS Securities said the rupee, which has lost 7.5 per cent so far this year against the US dollar, will settle at the 80 level by March.

There will be no tailwind for the rupee and it may plumb further in the medium term, given the pressure on the Current Account Deficit. This will be due to rising trade gaps and the massive sell-off by foreign funds.

Foreign funds have pulled out investments worth $29 billion or 4.4 per cent of their India holdings since the beginning of the year.

UBS India Chief Economist Tanvee Gupta-Jain said at the 80 level, the rupee is trading near its fair value from the Real Effective Exchange Rate (REER) basis and by adjusting for the productivity differential with trading partners.

The rupee is trading near its equilibrium value and “even as we expect the rupee to trade at 80 by the fiscal end, there is a risk of rupee to depreciate more in the near term as the current account deficit remains high, which we see more than doubling to 2.9 per cent,” she said.

The forex reserves remain reasonable at $580 billion but down from the peak of $ 642.4 billion in September 2021 on valuation adjustment and RBI’s market intervention of over $40 billion plus in the spot and forward markets so far to support the rupee.