By Arsh Tushar Mogre and Devayani Sathyan
BENGALURU (Reuters) – The Indian rupee will trade near a record low against a strong dollar after this year, weighed by higher oil prices and the US Federal Reserve’s rate hike campaign, according to a Reuters poll of foreign exchange strategists.
Thanks to the Fed-injected dollar, the rupee has fallen more than 10% this year and reached an all-time low of $82.22/$ on Thursday, although the Reserve Bank of India continues to sell its foreign currency reserves to defend the local currency.
While it found a short respite after the Reserve Bank of India raised interest rates for the fourth time in a row last week, the widening trade deficit driven by higher oil prices and slowing exports sent the rupee down.
This downward trend is unlikely to reverse anytime soon, according to an Oct 3-6 Reuters poll of 40 FX analysts, which showed the three-month median forecast for the currency at 82.00/$, near where it traded on Thursday.
But the median view of 19 analysts who answered a separate question showed that the rupee will fall to 83.00/$ before the end of the year. Expectations ranged between 82.00-84.00 / $.
The rupee was then expected to recover only 0.7% to trade around $81.30 in 6 months and $80.50 in 12 months, still not far from its record low. This is in line with expectations in a broader survey of the dollar’s dominance to continue beyond 2022.
Although the average consensus showed a marginal recovery in six months, about 25% of strategists, 10 out of 39, expected the partially convertible rupee to reach 82.5/$ and beyond. None of them expected this in the September poll.
Asked about the best approach to boost emerging market currencies against the dollar over the next six months, about 40% of analysts, 18 out of 45, said central banks need to raise interest rates more aggressively. Just under a third said there was nothing that could be done.
Just over 10% of economists suggested central banks should continue selling their dollar reserves.
A separate Reuters poll showed that the Reserve Bank of India has already spent nearly $100 billion of its previous reserves of $642 billion and is expected to exhaust them to $523 billion by the end of 2022 to prop up the rupee.
“With foreign exchange reserves slowly declining and the dollar’s appreciation causing the rupee to surpass $80.00, foreign exchange reserves will be used as ‘caramel at the wheel’ to slow the pace of exchange rate movements, rather than protect any levels,” he said. Sajjid Chinoy, Chief Indian Economist at JP Morgan.
“The response to global pressures – largely borne by foreign exchange reserves – will be, from now on, with a more equitable sharing of reserves and interest rates.”
(For other stories from the October survey by Reuters on foreign exchange 🙂