India's rupee will trade near its historic low in three months, despite widening trade and current account deficits, according to a Reuters poll where nearly one in three analysts expect it to weaken to 80 per dollar by September.
A global stampede into safe-haven U.S. dollars on rising global recession risks pushed the Indian rupee to a new record low of 79.40 against the dollar on Tuesday.
However, the Reserve Bank of India's intermittent dollar selling helped limit losses, higher global crude oil prices and steady capital outflows have widened its current account deficit, which has in turn dragged down the rupee.
The worst is still not over. Nearly one-third of respondents expect the rupee to be at an all time low of 80 to the dollar by the end of September, according to the July 1 -- 6 poll of over 40 foreign exchange analysts.
Asked what is the rupee's lowest point against the dollar over the course of the next three months, 21 analysts who answered an extra question gave a median of 80 and the Fed is likely to deliver another 75 basis point hike, not boding well for the rupee, said Sakshi Gupta, principal economist at HDFC bank.
The momentum seen in the rupee indicates that there are a lot of global pressures with the market pricing a recession, the dollar getting a leg up, foreign capital outflows, plus oil and commodity prices being extremely volatile. India remains the fastest-growing economy, a weaker rupee, a stubbornly high inflation, elevated oil prices and the Russia-Ukraine war pose the biggest downside risks.
As the U.S. Federal ReserveFederal Reserve continues its aggressive tightening cycle, the rupee may face a bumpy ride. Foreign investors have pulled $13 billion from Indian stocks this quarter, the biggest since 2008, bringing the total outflows to over $30 billion in 2022.
The rupee is currently being battered by two forces. On the one hand you have worsening of the trade deficit on the back of a commodity price shock and on the other hand, capital outflows, said Prithviraj Srinivas, chief economist at Axis Capital.
If you look at our current account deficit position, you are most likely to see a double. Compared to last year. The current account gap in the country is manageable, according to RBI Governor Shaktikanta Das.
India's trade deficit increased to a record high of $25.63 billion in June, following a rise in crude oil and coal imports from $9.61 billion a year ago.