Future challenges for the battered Indian rupee

According to a Reuters poll, India’s battered rupee will remain vulnerable to a worsening trade balance and an aggressive U.S. Federal Reserve rate-hiking campaign into next year and trade close to its lifetime low versus the U.S. dollar. The rupee has hit its lowest point many times this year and would depreciate by more than 7% in 2022 as it falls along with other emerging currencies against a strong dollar.

Although a minor recovery was anticipated to reach around 79.74 per dollar by the end of February and 78.50 per dollar by the end of August, the anticipated 2% gain over the next 12 months would fall far short of making up for that 7% loss for the year. Despite the median showing a slight improvement, 18 of the 40 analysts surveyed predicted that the partially convertible rupee would reach or even break the 80 per dollar threshold in six months, setting a new record low. In a poll conducted in August, less than 40% answered that.

Asked what would be the rupee’s lowest point against the dollar over the next three months, 19 analysts who answered an additional question gave a median of 81, with a range of 80.00-83.34 per dollar. That was slightly weaker than the 80.50 per dollar consensus in last month’s poll.

Almost a three-quarters majority, 41 of 56, who answered another additional question said emerging market currencies would fall either marginally or significantly against the greenback over the next three months. While India’s 13.5% growth last quarter was the fastest among major economies it has had little effect on the rupee since base effects were mainly responsible for the strong burst in growth.

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