Rupee may slip past 92.25 next week as FPI outflows, trade war bite: Anindya Banerjee, Kotak Securities

The Indian rupee faces continued depreciation pressure and could breach the 92 mark in the coming week, according to Anindya Banerjee, Senior VP and Head of Commodity Research at Kotak Securities. The currency has emerged as one of the weakest performers globally, second only to the Turkish lira.

Key drivers behind Rupee weakness

Talking to ET Now, Multiple factors are contributing to the rupee's sustained decline. Relentless foreign portfolio investor (FPI) outflows continue to weigh heavily on the currency, while growing concerns about the unwinding of the yen carry trade add another layer of pressure. The rising Japanese bond yields have sparked concerns among market participants, further dampening sentiment toward emerging market currencies including the rupee.

Short-term outlook and price targets

Banerjee projects the rupee could slide toward 92 levels in the near term, with the possibility of breaking past this psychological barrier to reach 92.25 over the next week. However, he noted that the upcoming Union Budget could serve as a potential positive trigger that might help stabilize the currency.

RBI intervention strategy

While the Reserve Bank of India continues its daily intervention in foreign exchange markets to manage volatility, Banerjee emphasized that the central bank's approach remains measured. Given the ongoing trade war between the United States and India, the currency has become a strategic tool, particularly in an environment where domestic inflation remains subdued.

The RBI appears focused on slowing the pace of depreciation rather than defending any specific level. According to Banerjee, the central bank is likely to allow market forces to play out while waiting for sentiment to shift, potentially around the time of the budget announcement.

Market implications

The rupee's weakness reflects broader challenges facing the Indian economy, including persistent FPI outflows and external trade tensions. Market participants will be closely watching the Union Budget for policy measures that could restore investor confidence and provide support to the currency.

For businesses engaged in international trade, the depreciating rupee presents both challenges and opportunities. Importers face higher costs, while exporters may gain competitiveness in global markets. Currency hedging strategies may become increasingly important for companies with significant foreign exchange exposure in the current volatile environment.