Global financial turmoil, coupled with fears of further Chinese yuan devaluation and slowdown in domestic economy, are expected to hasten depreciation of the Indian rupee in the coming week, experts said on Saturday.
"The rupee value is expected to depreciate further on the back of weak global cues such as the ongoing financial turmoil, slump in the commodity prices and risk of further yuan devaluation," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
"The rupee might devalue further towards the 68-level mark which was last seen in 2013. At that point, we can expect a heavy intervention from the Reserve Bank of India (RBI) to stabilise the rupee value," Banerjee elaborated.
According to Banerjee, the slowdown in domestic reforms and growth has dampened investors sentiments and this will weigh heavy on the rupee.
"The weakness in the domestic economy, coupled with fears of a further yuan devaluation can hasten the fall in rupee value," Banerjee added.
"However, a proactive central bank should limit the extreme volatility in rupee value."
Market observers have predicted the rupee will hover around 66.50-67.50 to a US dollar in the coming week.
"USD/INR level wise, we see a key resistance at 67.70/75. A break will certainly lead the pair towards 68 and above level," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
"Too much of pessimism is prevailing in the market. Anxiety about crude and especially China markets has drawn the markets to a state of oblivion."
Another key area of concern for rupee has been the increased outflows of foreign funds from equity, and even from the debt markets, cited observers.
In contrast, an inflow was expected to have taken place via central and the state governments bonds, as RBI had decided last year to raise foreign investors' exposure limits.
The RBI's decision was expected to usher in around $2.5 billion by this fiscal end.
"The anticipated foreign capital influx into the central and the state governments bonds has not taken place, instead we are seeing an outflow from the bonds markets," Banerjee elaborated.
On a weekly basis, the rupee weakened by 96 paise to 67.60 (January 15) to a US dollar from its previous close of 66.64 to a greenback (January 8).
The National Securities Depository Limited (NSDL) figures showed that the FPIs were net sellers during the week ended January 15 2016. They divested Rs.3,458.33 crore or $368.3 million in the equity and debt markets from January 11-15.
Similarly, the data with stock exchanges showed that the FPIs sold stocks worth Rs.4,281.89 crore in the week under review.
In addition, a major trigger in the form of further crude oil price slide can weaken the rupee further. The slide will erode investors' confidence -- leading to a panic sell-off in equity and debt markets.
Another crude oil price plunge is expected from Monday, as sanctions over Iran would be lifted. This is expected to increase the oil supply manifold in the international markets, thereby taking the prices south.
