India’s FX strategists predict this year’

123
2
India’s FX strategists predict this year’

The rising oil prices and aggressive U.S Federal Reserve rate-hiking campaign will cause India to trade near its record low against the dollar beyond this year, according to a poll of FX strategists.

The rupee has fallen more than 10% this year and reached a new all time low of 82.22 on Thursday, even though the Reserve Bank of India continues to sell its forex reserves to defend the local currency, despite the fact that the Fed-pumped dollar has fallen over 10% this year.

The rupee was down due to a widening trade deficit due to rising oil prices and a slowdown in exports, which has dragged it down after the RBI delivered its fourth consecutive interest rate hike last week.

The median view of 19 analysts who answered a separate question showed that the rupee would fall as low as 83.00 before the end of the year. Forecasts ranged between 82.00 and 84.00 The rupee was projected to recover about 0.7% to trade around 81.30 in 6 months and 80.50 in 12 months, still not far from its record low. It's been predicted that the dollar's dominance will continue beyond 2022, which is in line with expectations in a wider poll.

In six months, the median consensus showed a marginal recovery, but about 25% of strategists, 10 of 39, forecast the partially-convertible rupee to reach 82.5 and beyond. Nobody predicted that in a September poll.

Asked what should be the best way to strengthen emerging market currencies against the dollar over the next six months, around 40% said central banks need to hike interest rates more aggressively. Slightly under one-third said there was nothing that could be done.

Over 10% of economists believe central banks should continue selling their dollar reserves.

The RBI has already spent nearly $100 billion of its previous $642 billion pot of dollar reserves and is expected to deplete it to $523 billion by the end of 2022 to prop up the rupee, according to a separate Reuters poll.

With FX reserves slowly being run down and dollar strength causing the rupee to go past 80.00 FX reserves will be used as sand in the wheels to slow the pace of exchange rate movements rather than protect any levels, said Sajjid Chinoy, chief India economist at J.P. Morgan.

The response to global pressures that are largely borne by FX reserves will be more equitably shared between reserves and interest rates.