Rupee Could Hit 62.50-62 byMarch
9% to 58 to a dollar — a level last recorded in June three years ago.
The local unit closed at a two-yearhigh of 63.58 a dollar on Friday, compared with 64.08 on Tuesday, a day before the central bank’s bimonthly monetary policy that kept the policy stance unchanged at ‘neutral’. The ET poll has also suggested a clear shift to bullish sentiment from bearish reflected earlier on the rupee.
“Prospects of a high real interest rate have led overseas investors to bet big on India,” said State Bank of India chief economist Soumya Kanti Ghosh. “This helps the rupee’s steady climb against the dollar. Rising unhedged positions for importers also add to market speculation that the rupee would appreciate further from the current level.”
A rising rupee could hit exporters, while it may make borrowing in US dollars cheaper, with per unit repayment cost trending down in rupee terms.
Realrateisthenominalrateminus inflation. There are different ways of calculating the metric. It is now a little over 4% going by the central bank’s latest method of deriving it — the policy or repo rate minus retail inflation. The real rate was just about 10 basis points, or 0.1%, in January2014whenthecurrentcycle of easing in repo rates began. Repo rates have fallen about 2 percentage points since then, compared with more than a 6 percentage point decline in consumer inflation.
To be sure, the most bearish call assumes the currency will slide to 68 to a dollar by March, 2018, while some participants expect a fall to about 66.
“A combination of factors is triggering the rupee’s rise,” said Ashish Vaidya, head of trading and ALM at DBS Bank. “A stable government, a surge in overseas inflows, supported by both foreign direct investment and foreign portfolio investors are helping, while a falling dollar index has added to the momentum.”
Foreign direct investment, or FDI, inflows hit an all-time high of $60.1 billion in 2016-17. Foreign portfolio investors, or FPIs, have invested a net of ₹ 1.75 lakh crore this calendar year in equities and debt, the highest since 2014. “Also, the markets assume no threat from the US rate increase, with the Federal Reserve hinting at non-disruptive withdrawal of liquidity,” Vaidya said.