According to a Reuters poll, the Indian rupee is set to near its all-time low in three months, battered by widening trade and current account deficits.
A global rush for safe-haven US dollars amid mounting global recession risks pushed the Indian rupee to a record low of 79.40 against the greenback on Tuesday.
While the Reserve Bank of India’s intermittent dollar sales have helped mitigate losses, higher global crude oil prices and steady capital outflows have widened the current account deficit, which in turn has pushed the rupee down.
But the worst isn’t over yet.
While the July 1-6 poll of more than 40 currency analysts showed that the rupee is now expected to trade around $79 per dollar by the end of September, nearly a third of respondents predict it will be at a new all-time low of 80 for the dollar. will stand. or more.
When asked what the rupee’s low will be against the dollar over the next three months, 21 analysts who answered an additional question gave a median of 80, with a range of 79.50-85.00 /$.
“We now live in a volatile and risky environment where forecasting revolves around scenarios and with US inflation (interest rates) showing no signs of peaking yet, the Fed is likely to hike another 75 basis points. rupee,” said Sakshi Gupta, chief economist at the HDFC bank.
“The momentum we have seen in the rupee indicates that there is a lot of global pressure with the pricing of a recession in the market, the appreciation of the dollar, outflows of foreign capital and extremely volatile oil and commodity prices.”
While India remains the fastest growing major economy, a weaker rupee, stubbornly high inflation, high oil prices and the war between Russia and Ukraine pose the biggest downside risks.
As the US Federal Reserve continues its aggressive tightening cycle, the rupee could face a bumpy ride. Foreign investors have already taken $13 billion from Indian equities this quarter, the largest since 2008, bringing total outflows to more than $30 billion so far in 2022.
“The rupee is currently being ravaged by two forces. On the one hand you have a deterioration in the trade deficit due to a shock in commodity prices and on the other hand you have capital outflows,” said Prithviraj Srinivas, chief economist at Axis Capital.
“If you look at our current account deficit, we will most likely see a doubling… from last year.”
RBI Governor Shaktikanta Das has repeatedly said the country’s current account gap is manageable.
India’s trade deficit rose to a record high of $25.63 billion in June, after crude oil and coal imports surged from $9.61 billion a year earlier.