No peace for India's rupee as mighty dollar thunders on: Poll


FE Team | Published: October 07, 2022 10:56:43 | Updated: October 08, 2022 15:42:09


A man counts Indian currency notes inside a shop in Mumbai, Indianon August 13, 2018 — Reuters/Files

India's rupee will trade near its record low against the mighty greenback beyond this year, buffeted by rising oil prices and an aggressive US Federal Reserve rate-hiking campaign, according to a Reuters poll of FX strategists.

Steamrolled by the Fed-pumped dollar, the rupee has fallen over 10% this year and reached an all time low of 82.22/$ on Thursday, even though the Reserve Bank of India continues to sell its forex reserves to defend the local currency.

While it found brief respite after the RBI delivered its fourth consecutive interest rate hike last week, a widening trade deficit driven by rising oil prices and a slowdown in exports have dragged the rupee down.

That downward trend is unlikely to reverse anytime soon, according to the Oct. 3-6 Reuters poll of 40 FX analysts which showed the three month median forecast for the currency at 82.00/$, near where it was trading on Thursday.

But the median view of 19 analysts who answered a separate question showed the rupee would fall as low as 83.00/$ before year-end. Forecasts ranged between 82.00-84.00/$.

The rupee was then expected to recover just about 0.7 per ceny to trade around 81.30/$ in 6 months and 80.50/$ in 12 months, still not far from its record low. That lines up with expectations in a wider poll for the dollar's dominance to continue beyond 2022.

Although the median consensus showed a marginal recovery in six months, about 25 per cent of strategists, 10 of 39, forecast the partially-convertible rupee to touch 82.5/$ and beyond. None predicted that in a September poll.

Asked what was the best approach to strengthen emerging market currencies against the dollar over the coming six months, around 40 per cent analysts, 18 of 45, said central banks needed to hike interest rates more aggressively. Slightly under one-third said there was nothing that could be done.

Just over 10% of economists suggested central banks should continue selling their dollar reserves.

The RBI has already spent nearly $100 billion of its previous $642 billion pot of dollar reserves and was expected to deplete it to $523 billion by end-2022 to prop up the rupee, a separate Reuters poll showed.

"With FX reserves slowly being run down and dollar strength causing the rupee to go past 80.00/$, FX reserves will be used as "sand in the wheels" to slow the pace of exchange rate movements, rather than protecting any levels," said Sajjid Chinoy, chief India economist at J.P. Morgan.

"The response to global pressures – so far borne largely by FX reserves – will, from now on, be more equitably shared between reserves and interest rates."

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