Rupee is expected to trade sideways in the near term, says BS poll

At record low, rupee better off than peers; RBI may provide support to prevent sharp depreciation, says BS poll

On a day when most Asian currencies were hammered after the US reported higher-than-expected inflation, which pushed investors towards safe-haven assets, the rupee performed better than most peers, even as it breached the 78-mark against the dollar to hit a new all-time low.

The rupee settled the day at 78.04 against the dollar, after hitting a low of 78.28 intraday. Its previous close was 77.84. The rupee depreciated 0.25 per cent against the dollar, while some other Asian currencies like the South Korean won, Indonesian rupiah, and Philippine peso declined 1.22 per cent, 0.9 per cent, and 0.6 per cent.

Many experts see the rupee trading sideways for now and not witnessing a sharp decline.

“Heavy RBI intervention is suspected, both in spot, as well as forwards. Thanks to that alleged intervention, today the rupee is one of the strongest currencies in the world,” said Anindya Banerjee, V-P, currency derivatives & interest rate derivatives at Kotak Securities.

“Until the US Fed meeting on Wednesday, there can be significant upward pressure on USDINR. Odds for a 75-bp hike are rising, and that is positive for the dollar. However, we expect the RBI to cap the upside. We are looking at a range of 77.90 to 78.40 on spot over the near term,” Banerjee said.

According to a poll conducted by Business Standard, the rupee is expected to trade sideways in the near term and is not seen sharply depreciating as the Reserve Bank of India is likely to continue its support by buying dollars.

“Because of global risk aversion, the Indian rupee has reacted, though the pace is pretty tolerable because of the RBI’s action lately. Otherwise, global currencies have gone pretty weak as compared to the dollar,” said Abhishek Goenka, CEO, IFA Global.

“We are likely to see calibrated weakness if oil stays above $120 a barrel and global risk sentiment does not improve. Impending chances of a recession in the US is inching up,” Goenka said.

While the central bank may continue to intervene in the foreign exchange market, the rupee can be still under pressure because weaker fundamentals and Brent crude hovering around $120 per barrel have heightened worries about a widening trade deficit (to the tune of 3.5 per cent).

The rupee started depreciating rapidly since Russia invaded Ukraine in late February. The RBI has been intervening in the foreign exchange markets aggressively, trying to slow the pace of the fall. RBI Governor Shaktikanta Das had said that the central bank does not allow free fall of the currency, while asserting that the central bank does not target any particular level.

“Weaker fundamentals are weighing on the Indian rupee with Brent crude hovering near $120 a barrel, raising the concerns of the widening trade deficit. The rising US interest rates are leading to concerns of further capital outflows,” said Amit Pabari, managing director, CR Forex.

The rupee has fared well when compared with other currencies like the Thai baht or Malaysian ringgit since the war in Europe. The rupee depreciated 3.05 per cent since February 24 – that is the day when Russia invaded Ukraine – much less than some of the Asian currencies.

The sharp rise in consumer price index in the US which resulted in expectations of steeper interest rate hikes by the US Federal Reserve also impacted domestic bond prices. The yield on the 10-year government bond jumped 9 bps to close the day at 7.6 per cent. In the US, 10-year Treasury yields rose to 3.31 per cent — the highest since April 2011.