Despite falling to record lows this year, the rupee has significantly outperformed many other emerging market currencies
Selling of domestic equities by foreign investors is a major threat for rupee going forward
The Indian rupee today edged closer to 77 a dollar and some analysts say that the Indian currency may hit 80 a dollar over next few months. Today, the rupee hit 76.91 at day's low before closing at 76.67. Though the rupee has significantly outperformed other emerging market currencies in this coronavirus-related market mayhem, selling pressure from outflows from Indian will weigh on the Indian currency, say analysts.
But the pace of decline of rupee could be slow as compared to other emerging market currencies due to the sharp fall in global oil prices, say analysts.
"Selloff in equities is a major threat for rupee going forward. FPIs own $378 billion ( ₹2,900,000 crore) of Indian equities," said Abhishek Goenka, Founder and CEO, IFA Global.
Year to date, the rupee is down over 7% against the US dollar after foreign investors withdrew a record sum of over ₹1 lakh crore from Indian capital markets in March, though the selling has slowed this month.
"If coronavirus induced disruptions exacerbate, amid fiscal concerns we may see another 3-4% follow-up move in USD-INR to new all-time highs," IFA Global said in a recent note.
"Lower crude prices should provide some respite to the rupee but during times of extreme risk aversion it is often the capital market outflows that tend to have a predominant and more pronounced impact," the forex advisory said.
"The current account deficit is likely to narrow significantly as imports would fall more than exports. The RBI has done a reasonable job of containing the rupee so far. A spike in volatility could lead to further acceleration in capital market outflows. Hence, the RBI reaction function would also be extremely crucial," it added.
The rupee may drop another 4.7% to 80.6 per dollar by June end amid capital outflows, according to Bloomberg Economics.
The US dollar has also strengthened against other currencies as investors fled riskier assets for the world's most liquid currency.
“Given the uncertainty surrounding the potential duration of the outbreak and the lockdown, we believe the RBI is unlikely to attempt a hard intervention that would risk quick depletion of its reserves," said Abhishek Gupta, India economist at Bloomberg.
ICICI Securities said: "We believe this resilience of the rupee may continue due to improving macros in India. Also, as the RBI has been quite active and announced measures to curb rupee depreciation, the pace of rupee depreciation would remain quite slow."
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Never miss a story! Stay connected and informed with Mint.
our App Now!!