The rupee on Tuesday breached the psychological mark of 80 against the dollar for the first time due to a host of global and domestic factors, before regaining lost ground as the Reserve Bank of India intervened by selling dollars through state-run banks.
The local currency hit the record low on the back of rising crude prices, increasing demand for the dollar amid a looming recession, consistent foreign investment outflows, inflationary pressures and a widening trade deficit at home.
“The US Federal Reserve embarking on steep rate hikes to rein in inflation will aggravate the situation further,” Anuj Choudhary, research analyst at Sharekhan by BNP Paribas, told DH, highlighting the upcoming US central bank meeting next week.
The rupee’s depreciation will boost the prospects of export-oriented sectors such as information technology, pharma and textiles, and hurt import-oriented ones such as oil & gas, paint, aviation, electronics, metals and mining, experts said.
The average Indian consumer will certainly feel the pinch as imported household items ranging from electric appliances to dry fruits will become more expensive.
“A weak rupee hurts common people as goods and services get costlier due to high import costs and accentuates the inflationary pressure,” said Sugandha Sachdeva, Vice president - Commodity & Currency Research, Religare Broking.
The road ahead
The rupee fell to as low as 80.06 versus the dollar on Tuesday before reversing losses after the RBI intervention.
Analysts expect the currency to fall further this year.
“We expect the rupee to end this calendar year between Rs 80/USD and Rs 81/USD. In the meanwhile, we expect a pronounced weakness in the rupee, which may take it to Rs 82-83 level,” Choudhary said.
Religare Broking’s Sachdeva sees the rupee hovering in the 78.50-81 band by September end and “remain cushioned at 81” due to a host of factors.
“The US central bank might be forced to pause its rate hike cycle going forward given the concerns about recessionary risks and it seems that the worst is likely to be over soon. Secondly, the RBI and the government have recently taken several measures which might stem the fall in the rupee,” she said.
Experts pointed out that depreciation has also been observed in other foreign currencies. “Notably, the dollar has strengthened against other currencies too and not just against INR. Hence, this should not be seen in isolation,” said Sumit Pokharna, Vice president - Fundamental Research, Kotak Securities.
The rupee on Tuesday recovered from its all-time low of 80.05 to close 6 paise higher at 79.92.