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India's forex reserves, strong fundamentals to cushion rupee's fall against dollar: Report

The rupee has been depreciating on account of a multitude of global factors, including elevated high commodity prices, heightened geopolitical uncertainty, rapidly rising global interest rates. (Photo: Mint)Premium
The rupee has been depreciating on account of a multitude of global factors, including elevated high commodity prices, heightened geopolitical uncertainty, rapidly rising global interest rates. (Photo: Mint)

  • The rupee fell 46 paise to close at a record low of 78.83 against the US dollar on Tuesday, on the back of persistent foreign capital outflows and a surge in crude oil prices

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NEW DELHI: Strong forex reserves with the Reserve Bank of India and the country’s long-term economic potential would buffer a sharp decline in the rupee against the US dollar, QuantEco has said in a report. It expects the Indian rupee to touch 81 to a dollar before the end of 2022-23.

The Indian currency has weakened for six straight months, depreciating 3.9% in FY23 so far and is currently trading at an all-time low.

The rupee fell 46 paise to close at a record low of 78.83 against the US dollar on Tuesday, on the back of persistent foreign capital outflows and a surge in crude oil prices.

“Basis the outlook on the USD and the projection for the balance of payments, we believe depreciation pressure on INR would continue to persist in FY23…India’s long term economic potential remains constructive amidst introduction of various economic reforms in the last few years while political instability has reduced considerably. We believe INR could weaken towards 81 to a dollar before the end of FY23 (amounting to a 6-7% depreciation)," said the report. 

It added that risk surrounding these forecasts is high amid unpredictable geopolitical temperature and its impact on commodity prices.

The rupee has been depreciating on account of a multitude of global factors, including elevated international commodity prices, heightened geopolitical uncertainty, rapidly rising global interest rates, moderation in global demand, etc. At the same time, few domestic factors like support to imports from a gradually recovering domestic economy and recent export restrictions imposed by the government in select commodities could also be playing a secondary role, said the report.

Emkay Wealth Management pointed out that a surge in the US greenback may continue given global economic uncertainties.

“The very fact that almost every other economy is plagued with inflationary pressures and falling economic growth rates, brings to the fore the safe-haven status of the US dollar in the face of uncertainties. What has added to this positive sentiment is the emphatic action on interest rates from the Fed which instilled confidence in the markets that the inflation combatting mode will bring to a halt the price rise faster than expected," the Emkay report noted.

It said the Indian rupee has been adversely affected by FIIs pulling out funds from the equity market, rising crude prices, deteriorating trade balance and a stronger dollar. “The Indian government’s finances may also be a matter of concern for overseas investors given the rising expenditure which may lead to dependence on the markets for additional resources," it added.

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