Rupee likely to depreciate further, USDINR may consolidate in 77-79 range in next quarter | INTERVIEW

The Indian Rupee has been on a decline due to continuous foreign fund outflows and a risk-averse environment. At the end of February 2022, when the Russia-Ukraine war started, the rupee had stood at 73-74 to a dollar. Since then, its continuous fall has forced it to hit all-time low levels multiple times and has dragged the domestic unit above 78 mark. Dilip Parmar, Research Analyst, HDFC Securities said in an interview with Harshita Tyagi of that there could be more pain for Rupee in the near term. “If the dollar continues to strengthen against regional currencies, the Indian rupee will follow it and we might see a level of 79,” Parmar said. Here are the excerpts from the interview.

Q. Rupee is depreciating and is hitting fresh all-time lows almost everyday. What are the factors dragging the currency down?

The biggest factor which drags currency lower is foreign fund outflows and a risk-averse environment. So far this year, we have seen capital outflows of around $28 billion from the equities and $1.7 billion from the debt market. The growing concerns about higher inflation forced global central banks to hike interest rates and roll back liquidity which adversely impacted risk sentiments and supported haven dollar demand.

Q. Is further depreciation on cards? If so, can we see Rupee heading towards 79-80?

There could be more pain in the near term but we do not expect sharp depreciation like other Asian peers. So far rupee has been the median performer among Asian currencies and is expected to remain an average performer following RBI’s intervention. If the dollar continues to strengthen against regional currencies, the Indian rupee will follow it and we might see a level of 79.

Q. What is your 3-month target for Rupee?

We expect the Indian rupee to swing in the range of 77 to 79 in the next quarter.

Q. What, if anything, is RBI doing to lessen the damage for Rupee?

As we all know, RBI is continuously intervening in the forward markets and that’s the reason forward premium is near a multi-year low level and the rupee is the median performer among Asian currencies. Though we have enough forex reserves, the way capital outflows are happening, the central bank needs to come up with measures to stop outflows and encourage inflows.

Q. What does the rupee depreciation mean beyond export and import bills?

The rupee depreciation impacts the cost of goods and services as we are dependent on imports for raw materials like crude oil, urea, pulses, edible oil etc. and higher import cost lead to higher product prices and a rise in inflation, slower demand and ultimately slower growth and higher interest rate. So, countries like ours which are more import-dependent need a stable currency regime.

Q. What is the ideal investor strategy for forex traders amid this consolidation?

In the last six months, the rupee has depreciated more than 5% against the US dollar and most of the negativity has been priced in by the market. We believe traders should cover the long dollar around 79 and wait for a correction towards 77 for a fresh position. USDINR is likely to consolidate in the range of 77 to 79 in the coming months.

(The recommendation in this story is by the respective research analyst. does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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