High commodity prices to keep rupee under pressure: BofA Securities

"India has continued to post wide trade deficits due to higher prices of oil and other commodities, which have eroded INR's basic balance buffer," the research house said.

rupee
Photo: Bloomberg
Reuters MUMBAI
1 min read Last Updated : Aug 24 2022 | 5:49 PM IST

MUMBAI (Reuters) - Elevated commodity prices could widen India's current account deficit, keeping the rupee under pressure until more sustainable capital flows can fill the gap, BofA Securities said in a note on Wednesday.

"India has continued to post wide trade deficits due to higher prices of oil and other commodities, which have eroded INR's basic balance buffer," the research house said.

Higher oil price and other commodity prices "are materially impacting" the fundamental outlook for rupee amid increased risks of populist measures, it said.

Multiple measures from the Indian government and the Reserve Bank of India (RBI) to reduce demand for the dollar and improve supply to the tune of over $40 billion across spot and forwards, will likely stabilize rupee briefly, it said

Sustained support from RBI would be needed to maintain a gradual pace of rupee depreciation.

"The support could be in the form of further intervention or tightening of monetary conditions for longer term external rebalancing."

Risk-reward on rupee remains skewed for further depreciation, BofA said, recommending hedging long rupee exposure despite the high costs.

 

(Reporting by Nimesh Vora)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

More From This Section

Topics :Commodity pricesOil PricesIndian rupeeRBIindian governmentDollar

First Published: Aug 24 2022 | 5:49 PM IST

Next Story