Tue. Jul 26th, 2022

Rupee vs Dollar: What is to be expected in coming months?

The Reserve Bank of India (RBI) has announced a slew of measures to stabilise the rupee, which has been falling against the US dollar for sometime.

The rupee has shed about six per cent of its value against the dollar since the beginning of this year and the worrying trend has become much more prominent in recent weeks. This has prompted the Reserve Bank of India (RBI) to announce a slew of measures to bring in a fistful of dollars by liberalising foreign exchange inflows.

The rupee has shed about six per cent of its value against the dollar since the beginning of this year and the worrying trend has become much more prominent in recent weeks. This has prompted the Reserve Bank of India (RBI) to announce a slew of measures to bring in a fistful of dollars by liberalising foreign exchange inflows.

However, the question remains whether these moves will offer much needed immediate support to the floundering rupee as inflation pushes higher and the current account deficit threatens to balloon towards multi-year highs or not.

RUPEE’S OUTLOOK

The rupee is likely to trade near its historic low in three months, battered by widening trade and current account deficits, according to a Reuters poll.

Even as the RBI’s intermittent dollar selling helped limit losses, higher global crude oil prices and steady capital outflows have widened its current account deficit, which in turn, has dragged down the rupee, as per a Reuters report.

Reuters conducted the poll of over 40 foreign exchange analysts between July 1 to July 6. The results showed the rupee is now expected to trade around 79 per dollar by end-September, nearly one-third of respondents forecast it to be at a new historic low of 80 to the dollar or more.advertisement

IMPACT

While India remains the fastest-growing major economy, a weaker rupee, stubbornly high inflation, elevated oil prices and the ongoing Russia-Ukraine conflict pose the biggest downside risk.

As the US Federal Reserve continues with its aggressive tightening cycle, the rupee may face a bumpy ride. Foreign investors have already pulled $13 billion from Indian stocks this quarter, the biggest since 2008, taking the total outflows so far in 2022 to over $30 billion, as per the Reuters report.

India’s June trade deficit widened to a record high of $25.63 billion, following a rise in crude oil and coal imports, from $9.61 billion a year earlier.

However, RBI Governor Shaktikanta Das has repeatedly assured that the country’s current account gap is manageable.

However, the question remains whether these moves will offer much needed immediate support to the floundering rupee as inflation pushes higher and the current account deficit threatens to balloon towards multi-year highs or not.

RUPEE’S OUTLOOK

The rupee is likely to trade near its historic low in three months, battered by widening trade and current account deficits, according to a Reuters poll.

Even as the RBI’s intermittent dollar selling helped limit losses, higher global crude oil prices and steady capital outflows have widened its current account deficit, which in turn, has dragged down the rupee, as per a Reuters report.

Reuters conducted the poll of over 40 foreign exchange analysts between July 1 to July 6. The results showed the rupee is now expected to trade around 79 per dollar by end-September, nearly one-third of respondents forecast it to be at a new historic low of 80 to the dollar or more.advertisement

IMPACT

While India remains the fastest-growing major economy, a weaker rupee, stubbornly high inflation, elevated oil prices and the ongoing Russia-Ukraine conflict pose the biggest downside risks.

As the US Federal Reserve continues with its aggressive tightening cycle, the rupee may face a bumpy ride. Foreign investors have already pulled $13 billion from Indian stocks this quarter, the biggest since 2008, taking the total outflows so far in 2022 to over $30 billion, as per the Reuters report.

India’s June trade deficit widened to a record high of $25.63 billion, following a rise in crude oil and coal imports, from $9.61 billion a year earlier.

However, RBI Governor Shaktikanta Das has repeatedly assured that the country’s current account gap is manageable.

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