After experiencing a depreciation of 1.1 per cent so far in August, the rupee is anticipated to face further depreciation on the back of a strengthening US dollar and a weakening Chinese Yuan, according to a Business Standard poll.
The Indian unit reached an all-time low last week, closing at 83.15/$ on Thursday.
Five out of 10 respondents in the poll predicted the Indian unit may touch 83.5/$ in August, while others suggested the worst could be over. The rupee ended the day at 83.11 on Friday.
“We don’t think any further depreciation will be there. Maximum it can go up to Rs 83.25 per US dollar only. Next month onward it will improve, and around Rs 82.80 per US dollar, somewhere it should stabilise,” said Arun Bansal, ED Head of Treasury at IDBI Bank.
However, the majority of participants see the local currency regaining its ground against the greenback by the end of the current calendar year. This view hinges on the expectation that the US Treasury bond yield and the dollar index might have reached their peak and could start moderating soon.
“In the near term, the global situation seems to have changed a little bit. The dollar index has been very firm, both because of safe-haven flows, and given what is happening in China,” stated Sakshi Gupta, principal economist at HDFC Bank.
“I think the pressure should continue to remain alive by the end of the month, and we could see the current movement on the USD-INR there. However, by the end of the calendar year, the Rupee could move again towards the Rs 82-83 per US dollar range because there is likely, both for US yields as well as the dollar index, some moderation to some extent. That should, along with domestic growth holding up broadly, increase appreciation pressures,” Gupta added.
The Indian unit was remarkably stable in the first half of 2023, following a turbulent 2022 due to the war in Europe and interest rate hikes by the US Federal Reserve. In the current calendar year, the rupee has depreciated by 0.5 per cent, while it fell more than 10 per cent in the previous year, 2022.
The Indian unit appreciated by almost 0.1 per cent in the first six months of the current calendar year, backed by robust foreign inflows.
The Reserve Bank of India’s dollar-sale interventions might keep the rupee steady and prevent it from reaching record lows. RBI Governor Shaktikanta Das has previously stated that the central bank utilises foreign exchange reserves to contain volatility in the currency market. “With 600 billion US dollar reserves, I think we are far better placed today to deal with any situation,” Das had remarked.
“We hold the view that the Rupee appears to be undervalued, and attributing a value close to its all-time low is challenging to rationalise. While certain global macroeconomic indicators have hinted at vulnerabilities, a valuation surpassing the 83 mark seems inconsistent with the underlying domestic economic fundamentals,” said Amit Pabari, Managing Director at CR Forex.
The weakening of the Yuan is projected to be the primary cause for the fall of the rupee in August, prompted by the reduction of the interest rate differential between the Chinese Yuan and the US Dollar. The Chinese Government aims to support its struggling economy by lowering interest rates. While many countries globally are increasing interest rates to manage demand and fight high inflation, China contrasts by decreasing rates. Consequently, the decline of the Chinese currency leads to the weakening of other Asian currencies as well.
“The current underperformance in China will continue for the next quarter, after which we expect the Chinese economy and equities to stabilise, coupled with a slowdown in the US economy. This will lead to a fall in US bond yields, resulting in a decline in the US dollar against all currencies,” said Ritesh Bhansali, Vice President at Mecklai Financial Services. “We think the fair value of the rupee should be around Rs 80-81 per US dollar,” he added.
So far in August, the Indian currency was the least depreciating Asian currency after the Hong Kong Dollar. The South Korean Won depreciated the most against the US dollar, at 5 per cent.