Can robust greenback push rupee past 76 per dollar mark? Here's what experts say

NEW DELHI: Over the last few weeks, the Indian currency has witnessed a fair degree of volatility, with the churn driven primarily by a decidedly hawkish tilt from the US Federal Reserve and then the emergence of the latest headwind to global economic growth – the ‘Omicron’ strain of the coronavirus.

As retail inflation data in the US registered a multi-year jump in October, the monetary policy rhetoric emanating from the world’s largest economy decisively turned towards a faster shift to normalization, including a quicker rollback of quantitative easing.

With the US dollar index strengthening to sixteen-month highs towards the middle of November, the rupee predictably went on to take a beating, shedding 0.9 per cent versus the greenback in the last two weeks of the month gone by.


While the rupee is now close to the psychologically significant 75.50 per US dollar mark, experts on the domestic currency do not expect a runaway depreciation, with several leading analysts predicting that the Indian unit would consolidate around that level by the end of the current calendar year and perhaps even till the end of the fiscal year on March 30.

The partially convertible currency, which settled at 75.44 against the greenback on Tuesday, has weakened 3 per cent versus the dollar so far in 2021.

The factors in support of just a ‘mild’ depreciation of the rupee, even in the face of higher US interest rates and the new growth risk posed by Omicron, are the Reserve Bank of India’s formidable arsenal of foreign exchange reserves, the possibility of a Balance of Payments surplus and the likelihood of overseas investment in Indian firms.

At $638.69 billion (as on November 26), the RBI’s foreign exchange reserves are currently the fourth largest globally. The rush of Indian companies looking to raise funds through the primary market also does not seem to be abating, with four IPOs lined up this week itself following around ten such offerings last month.

Finance Minister Nirmala Sitharaman recently said that 61 companies have raised funds worth Rs 52,759 crores through IPOs till October in the current financial year and lest one forgets, life insurance behemoth LIC is yet to tap the primary market.

On the other hand, though, currency traders may have to deftly manage their books at a time when foreign institutional investors have been pulling out funds from equity markets -- a factor that has contributed to the recent turbulence in benchmark stock indices. FIIs have sold equities worth north of Rs 30,000 crore in November, official data showed.

ET Markets caught up with a few leading institutions to gauge the way forward:

• Standard Chartered Bank

Our forecast is at 75.50/$1 for December as well as March 2022. The reasons are pretty apparent -- stronger dollar, Omicron concerns plus the trade deficit that is coming at record levels for almost three to four months in succession.

Thus, we do expect the rupee to remain on a weaker footing. The flow story is likely to be supportive but not as supportive as it has been till now.

• India Ratings

For the rupee, the important things to look out for are the improvement in overall trade. The structural changes are happening – China plus one story, the PLI scheme, all these things, it looks like some of the patterns are changing. The second thing is inclusion in the global bond index. With all these things put together, the rupee should hold good at 75.00/$1 by December end.

• QuantEco Research

We were bullish on the dollar given the head start that the Fed has on policy normalization. The US economy has a much better recovery going on when you compare it with peers. There could be spillover into emerging market currencies… but there won’t be a runaway depreciation because of the strong RBI FX reserves and expectation that the BoP will remain in surplus. (Expectation: 75.50/$1 by December end; 76/$1 by March 2022)

• Barclays

It would appear that global factors, more than domestic factors, will influence the rupee more in the coming weeks, however, we expect the rupee to outperform on a relative basis. Even domestically, a widening current account deficit may mitigate the benefits of large capital inflows that have supported the rupee through the last 12 months. We believe that the pipeline of inflows remains chunky, but the Indian currency is likely to be more range-bound over the medium term.

• ICICI Bank

Strength in Dollar/Asia ex-japan is relatively muted given that growth differential is still favouring this part of the aisle and capital flows remain supported. The rupee has also benefited in that overall context, but given the rising pressure on the external trade front, we expect weakness in rupees towards 75.50 against the dollar by December end.

• HDFC Bank

The current weakness in the rupee may take it towards the last high that we had seen which is 75.45-75.00/$1. Given the global situation and the way in which the dollar index is behaving, it has been putting pressure on all the Asian currencies including the rupee.

It depends whether it breaks 75.50, then the next target would be 76-76.30. December end would be 75.50/$1.