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Most emerging market currencies are under pressure, particularly those with an external deficit and hence depreciation of Indian rupee should not be taken too much as a surprise. Rise in crude oil prices directly exerts upward pressure on inflation and the current account deficit or CAD, foreign portfolio investment or FPI outflows on tightening global liquidity along with rising US interest rates and a strong dollar is pushing the rupee to new lows. Rupee is under additional pressure due to elections and has weakened around 5 per cent against the dollar.
Experts expect rupee to hit a new low of 70 in the short term. “In our view, the rupee will continue to trade with a depreciation bias and could test 70 to the dollar as the political heat rises in late 2018. Nevertheless, we do not believe that 2018 will be a repeat of 2013.
Our forex market financial conditions index has deteriorated, but it is not yet at a crisis level witnessed in 2008 and 2013. Moreover, both inflation and the fiscal deficit have been relatively contained, limiting the risk of a spillover, while the RBI has built up reserves of over US$50bn over the past one year,” said Nirmal Bang in a note on Friday.
Motilal Oswal expects rupee to touch 70 against the dollar by 1HCY19 and average 68.2 in FY19 and 70.9 in FY20.
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