BS Poll: Rupee seen weakening as risk aversion among global investors may continue

The rupee may trade at 63.75 a month down the line

The rupee, which has breached the 63-a-dollar mark, might depreciate further, as global investors could continue to pull out of emerging markets, including India, due to risk aversion. The rupee might trade at 63.75 in a month, according to a Business Standard poll of 10 currency experts.

“The view among the regulator and the government is the currency is overvalued. The rupee’s range has shifted from 61-63 a dollar to 62.5-64.5. Weakness in the stock market, modest outflows for the first time in a year in FII (foreign institutional investor) debt and the widely-held view that the rupee is overvalued will lead to a depreciating bias for the rupee,” said Mohan Shenoi, president (group treasury and global markets), Kotak Mahindra Bank.

On Tuesday, the rupee ended stronger by 34 paise against the dollar, compared with its previous close at 63.15/dollar, due to dollar sale by banks and exporters.

The US Federal Reserve is set to hold a two-day meeting starting Tuesday and the market has discounted the fact that the Federal Open Market Committee might continue to maintain a hawkish stance. Currency experts believe this year, the Fed will start a rate rise cycle.

“I do not see huge movement in the dollar but overall, the undertone might be strong. The period between May and June is considered to be negative for the global equity market, owing to which risk aversion is high. That will be rupee-negative,” said Anindya Banerjee, currency analyst, Kotak Securities.

On Friday, the rupee had depreciated to 63.56 a dollar, down 0.82 per cent since the beginning of this year. On December 31, 2014, the currency had closed at 63.04/dollar.

J Moses Harding, group chief executive (liability and treasury management), Srei Infrastructure Finance, said the weakness in the currency was sue to domestic and global cues. “The domestic cues are from dilution in optimism on an improvement in macroeconomic fundamentals in FY16, against political headwinds for the government in economic policy initiatives. The shift to an accommodative monetary policy stance against normalisation of the recent re-rating of equity assets might lead to low FII appetite for India assets. The external adverse impacts are from a recovery in Brent crude prices by 45 per cent — from $45/barrel to $65/barrel— dollar strength against major currencies and rate rise fears from the US Fed in the third or fourth quarter of 2015,” he said.

Though the Reserve Bank of India (RBI)’s foreign exchange reserves are at an all-time high, experts say the central bank will use these only if there is a drastic fall in the rupee against the dollar.

Data released by RBI on Friday showed for the week ended April 17, the central bank’s foreign exchange reserves stood at an all-time high of $343.2 billion.

During that week, the reserves rose by $2.79 billion.