One thing has remained the same through the turmoil of the past few months: the decline of the rupee against the US dollar. The downward ride is not over yet, and experts say that the Indian currency has touched new all-time lows in recent months. Finance Minister Nirmala Sitharaman told the Lok Sabha that the rupee has declined by about 25 per cent against the dollar since December 31, 2014, according to data from the Reserve Bank of India. On December 31, 2014, the exchange rate stood at 63.33 against the dollar, while on July 11th this year the number was at Rs 79.41, Sitharaman had said in Parliament in response to a question.
Why did the rupee depreciate in recent months? The Russia-Ukraine conflict, soaring crude oil prices, and tightening global financial conditions were some of the factors that made it weaker against the dollar, according to Sitharaman. As of July 29th, the rupee has declined 7 per cent against the dollar in the past year.
There seems to be no respite for the rupee. According to some experts, the Indian currency will continue to be under pressure for the rest of the year, especially with the US Federal Reserve raising rates by a total of 150 basis points bps in June and July and signalling that it could raise rates in September. With the US Fed raising rates, emerging market economies like India are likely to see a flight of capital, which in turn would put more pressure on the Indian currency, leading to it depreciating further. Industry watchers estimate that the exchange rate could be at 81 - 82 to a dollar by the end of the year, due to the aggressive rate hikes by the US Fed and India's rising trade and current account deficits.
Abhishek Goenka, founder and CEO of the forex advisory firm IFA Global, expects the rupee to go towards 81 to a dollar by the end of the year. The rupee will fall to 80.50 levels by September and stabilise around this level until December, according to Anil Kumar Bhansali, head of Treasury at Finrex Treasury Advisors. Agrees Jigar Trivedi, Research Analyst at Anand Rathi Shares Stock Brokers. He believes that the rupee will hit 80.5 81 levels by the end of 2022.
Financial services major Nomura said the Indian currency could reach Rs 82 to a dollar between July and September because of a number of negative factors - including the year-long US Fed rate hikes and India's deteriorating balance of payments dynamics. Crisil expects the exchange rate to settle at Rs 78 to a dollar by March 2023, according to ratings and analytics firm Crisil.
Every cloud has a silver lining. The depreciating rupee is likely to boost the localisation of components in the consumer durables segment. Wherever possible, we are trying to localise these raw materials. The local manufacturer is still dependent on imports of key raw materials, so we cannot eliminate the impact of rupee depreciation completely. Kamal Nandi, Business Head and Executive Vice President of Godrej Appliances, says localisation can help reduce the impact of customs duty.
The president of Haier Appliances India believes that the depreciating rupee will have a limited impact on the pricing of his company's products. With more than 90 per cent of Haier products being manufactured at our two industrial parks in Ranjangaon, Pune and Greater Noida, we are hopeful that the Made in India products will have a limited impact on their prices, he says. We are constantly trying to minimize the impact of these factors on our consumers. It is good to have some factors that remain constant despite the economic uncertainty. Most people don't agree that a spiralling rupee is one constant we could have done without.