Because of pressure from India’s lingering current account deficit and the central bank’s efforts to increase its foreign exchange reserves, the rupee’s recent gains may prove to be temporary. This month, the currency has lagged behind peers such the Thai baht and Indonesian rupiah, rising just 1.4% despite persistent dollar depreciation. According to QuantEco Research, the rupee would depreciate over 2% from Friday’s 81.6 to 83.5 per dollar during the next three months. According to Nuvama Professional Clients Group, it will decline after 83.
The Reserve Bank of India is increasing its reserves after they hit a two-year low in October, which is limiting the currency’s gain. According to Abhilash Koikkara, head of forex at Nuvama, every decline in the value of the dollar relative to the rupee is seen as a chance for the RBI to restock.
A study by short seller Hindenburg Research last week that claimed businesses connected to Indian billionaire Gautam Adani had participated in stock manipulation and accounting fraud may have also rattled investor trust in India. The research was debunked by the Adani group of companies, who also produced a 413-page reply over the weekend. The projections for the rupee, which analysts surveyed by Bloomberg anticipate will conclude the quarter at 82 versus the dollar, show the downside risk for the Indian currency. Since the beginning of November, the Bloomberg JPMorgan Asia Dollar index has increased by more than 7%, but the rupee has only increased by 1.5%.
Along with its budget deficit, India continues to maintain a significant current account deficit, which contributes to its underperformance. According to Vivek Kumar, an economist at QuantEco, the expectation of a chronic deficit in the upcoming fiscal year “should continue to put slight depreciation pressure on the rupee.”
