Standard Chartered Plc’s Parul Mittal Sinha said the rupee, Asia’s best-performing currency this year, will return to levels last seen in the depths of the pandemic crisis. The currency will fall to 76.5 per dollar – about 4.4% lower than current levels – by the end of the year, the head of macroeconomic financial markets, India and South Asia said. This is the most bearish forecast seen among analysts polled by Bloomberg, and flies in the face of expectations for it to remain strong.
The rupee is a surprise winner in Asia this year, as expectations of an economic recovery, a scarce current account surplus and massive inflows of foreign capital shielded it from the impact of rising US rates. It has outperformed the Chinese yuan and the technology-dependent currencies Taiwan dollar and Korean won, all of which are expected to continue to gain as the global economy rebounds.
“We expect the rupee to weaken in FY 22 amid rising commodity prices, normalizing imports, rising inflation and continued central bank intervention “said Ms. Sinha, who has spent more than a decade trading currencies and rates in London, Singapore and India.
The executive, who joined Deutsche Bank India’s StanChart in 2019, sees the rupee lose some of its advantage. The current account is likely to fall into a deficit in the fiscal year starting in April, after an estimated surplus of 1.9 percent of gross domestic product in the current period, as imports increase.
Rising oil prices will hurt, she said.
The currency also appears to be overvalued at current levels, according to Sinha. Its real effective exchange rate is near decades-long highs, she said, adding that the market positioning is also long in rupees, unlike its regional peers.
The rupee advanced about 0.5 percent in March to reach 73.1125 per dollar. It slashed most of the month’s gains due to a 1.2% drop on Tuesday as state banks rushed to buy dollars before year-end. The median estimate in a Bloomberg survey is that it is trading around the 72.13 levels by the end of December.
A key factor that drove the rupee’s 2.3% losses in 2020 – it was the region’s worst performance – was an almost relentless build-up of foreign exchange reserves by the Reserve Bank of India. It bought $ 88 billion net of foreign exchange on the spot market last year, according to central bank data.
The pace will be slower in the next fiscal year, Sinha said. Valuation-adjusted foreign exchange asset accumulation fell to $ 4 billion this quarter from $ 31 billion in the previous three months, she said.
The RBI does not have an internal target on foreign exchange reserves, Governor Shaktikanta Das said last week, while reiterating the central bank’s goal of keeping the rupee stable.
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