Bankers see rupee hitting lows around 70 a dollar
09 Jul 2018
The Indian rupee seems to be the worst hit among all Asian currencies, including the Chinese yuan, as the US-China trade war puts pressure on all currencies. The Indian currency has fallen to levels around 69 against the US dollar and bankers expect it to hit the 70-a-dollar mark soon.
The rupee touched an all-time low of 69.10 against the dollar on 28 June. It closed at a lifetime low 68.95 on Thursday and 68.87 on Friday.
Continued strengthening of the US dollar, lack of foreign investment inflows and concerns over rising oil prices are likely to keep the rupee under pressure and push it down to the 70 mark this week, said bankers.
This is because the country has built up a huge trade deficit while inflow of foreign portfolio investments (FPIs) into the domestic equity market has also come down due to the US-China trade war, putting pressure on the rupee.
The Reserve bank of India has always stated that it does not target any level of the domestic currency, but intervenes in the foreign exchange (forex) market if it turns extremely volatile.
And with a forex reserves of around $406.058 billion as of 29 June 2018, the central bank has also nothing much to do.
India is now dependent on inflows into the secondary market and any delay in FPI flows could drive the rupee beyond 70 against the dollar, which could force RBI to fall back on non-resident funds, says a Bank of America Merrill Lynch report.
"We think RBI may issue NRI bonds to raise $30-35 billion to comfort the forex market, if FPI flows do not revive by the December quarter," BofAML said in the report.
If lack of FPI flows force RBI to sell $20 billion, it would have to do open market operations (OMOs) worth $50 billion to contain lending rate hikes, the report had said.