Gloomy forecast on rupee trend

The rupee bled further on Tuesday to close at a new low of 72.69 to the dollar even as market observers felt the miseries of the local currency might be far from over.

By Our Special Correspondent in Mumbai
  • Published 12.09.18
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Mumbai: The rupee bled further on Tuesday to close at a new low of 72.69 to the dollar even as market observers felt the miseries of the local currency might be far from over.

Some are even of the opinion that the rupee, which touched a historic low of 72.74 during Tuesday's trading, may collapse to 75 a dollar in the near term because of various factors.

The rupee has slumped more than 4 per cent in the last one month. Its fall is putting pressure on the RBI to either intervene aggressively or come up with other steps to stem the rout.

The RBI data on Tuesday showed that its net dollar sales in July was at $1.84 billion, lower than the June number of $6.18 billion as its intervention had come down.

While analysts had earlier told The Telegraph that 70 to the dollar had become the new normal, the view now is that the rupee could hit 73-73.50 level soon if the central bank or the government does not come up with some measures.

"The rupee still looks slippery unless some policy measures or strong intervention is done. It's now slated to head toward 73.50 levels,'' Sajal Gupta, head of forex & rates, Edelweiss Securities, said.

While countries running a current account deficit (CAD) have come under pressure, the CAD for India during the first quarter widened to 2.4 per cent of the GDP or $15.8 billion following a higher trade deficit of $45.7 billion compared with $41.9 billion a year ago.

Bloomberg quoting Philip Wee, a senior currency strategist at DBS, said India's trade deficit for August was likely to remain at $17-18 billion, while the US Federal Reserve was set to raise rates again this month and both these factors would affect the rupee.

If factors such as rising trade deficit, higher interest rates in the US or firm crude oil prices are not enough, there is a view that the rupee continues to remain over-valued in terms of the real effective exchange rate (REER).

REER is the weighted average of a currency against a basket of other currencies adjusted for inflation.

The RBI's September bulletin says the 36-country trade weighted REER stood at 114.54 in August against 115.32 in July.

"Though the REER has corrected from 122 to 114 since January, a further 3-4 per cent up move in the US dollar/rupee cannot be ruled out over the next 3-4 months. At a REER of 108-109, the rupee would be fairly valued,'' a note from IFA Global said.