India’s balance of payments deficit could fall to 82.50 against dollar by March

The country's balance of payments deficit and the dollar's surge could cause the country's balance of payment deficit to fall to 82.50 against the dollar by March, according to a research note.

The rupee dropped to a record low of 81.5775 on Monday as the dollar index raced to its highest level since May 2002 and the British pound fell.

The dollar was gaining strength after the U.S. Federal ReserveFederal Reserve raised rates by another 75 basis points and forecast large-scale hikes to control inflation last week.

Gaura Sen Gupta, economist at IDFC First Bank, said the dollar strength will continue as we look ahead.

Given the strength of the U.S. economy, it's more likely that the Fed will need to increase interest rates to 4.6% and maintain it for the rest of 2023. The Fed rate is currently at 3% -- 3.25% and officials have predicted it will reach 4.4% by the end of the year.

An elevated balance of payment BoP deficit has continued to weigh on the rupee.

Sen Gupta pointed out that India's current account deficit CAD is expected to grow to 3.5% of GDP and possibly to 4% if exports weaken further.

Foreign portfolio flows are expected to remain volatile, due to high Treasury yields and weak global risk sentiment.

A CAD of 3.5% of GDP is predicted to result in a BoP deficit of $63 billion in the current fiscal year, according to Sen Gupta.