Akash Jha
Due to the dollar’s strength and the Chinese yuan’s weakness, Anil Kumar Bhansali, head of treasury and executive director of Finrex Treasury Advisors LLP, stated in a recent interview with Moneypoise that the rupee could gradually decline over the next six months, potentially reaching 84 per dollar.
He added that this weakening should occur incrementally and have a limited impact on currency-related inflation. Bhansali anticipates the Rupee to reach 82.60 in December and 84 in March. Extracted excerpts:
Why has the rupee touched a record low, will it continue to decline?
Since the interest rate disparity between the Chinese yuan and the US dollar has been widening, the yuan has fallen to almost 7.35 per dollar, allowing the RBI to let the rupee drop to the 82.95 level it had been so adamantly protecting against.
Fed officials’ hawkish stance on interest rates helped the dollar index rise from a low of 99.50 to 103.50, and a decline in the value of the Japanese yen, from 138 to 145, provided the final push. Gold and other riskier assets have also been declining alongside the Dow for the past eight days. Fear of taking chances has increased as a result.
The increase in price of oil from $70 to $85 per barrel has also prompted the oil industry to increase its dollar purchases. Only the Reserve Bank of India (RBI) can sell dollars at times of rupee weakness because it has amassed large dollar reserves at 81.70. On Wednesday, it sold $2 billion, and it may have cautioned banks to reduce their dollar-rupee arbitrage holdings, which drove the rupee up to a high of 82.37 on Tuesday. Because of this, the depreciation of the rupee will be sluggish and gradual, depending on the movements of the dollar and Asian currencies following Friday’s Jackson Hole (Wyoming) Symposium hosted by the (US) Federal Reserve.
What will be the impact of the weakening rupee on FPI flows?
Although I am still optimistic, FPI inflows have decreased to nearly $1.8 billion in the last 15 days from $8 billion in the previous 20 days, despite my optimism. A weak rupee always discourages foreign direct investment because foreign investors begin to lose money on their holdings. However, a sluggish decline will permit FPIs to continue investing.
Will this delay the rate cut cycle and do you think the RBI needs to hike rates?
The government is determined to rein in inflation, and it will undoubtedly take action on the problem just as it did to rein in the cost of tomatoes and onions. Inflationary pressure on the cost of vegetables should ease by October/November, in my estimation. As the RBI anticipates interest rates to be higher, at 5.7%, (there may be) no rate reduction for the next 6-7 months until March 24. They might hold off on a rate hike, making the currency weaker and potentially helping exporters.
What is your outlook on inflation and the 10-year government bond yield?
For the next three months, I expect inflation to hover around 6%, with a tiny lean towards the lower end of the range. The yield on 10-year government bonds is forecast to be around 7.25 percent throughout the same time frame. I expect the 10-year yield to fall to roughly 6.80 percent over the course of the next year.
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What is your outlook for the Rupee?
If the current condition of dollar strength and Chinese yuan weakness remains, the rupee may be permitted to decline a bit, albeit slowly, around 84 in the next six months. Due to the gradual nature of the increase, it is unlikely that inflation or currency weakness will be significantly affected. My December goal is 82.60, and my March goal is 84.
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