Informist, Friday, Sep 1, 2023
By Pratiksha and Ananya Chaudhuri
NEW DELHI – The Indian rupee is expected to remain under pressure for the third consecutive month in September due to persistent weakness in the offshore Chinese yuan. However, the Reserve Bank of India will continue to defend the currency from sharp depreciation.
The Indian currency may end this month at 82.91 a dollar, according to the median of estimates of 12 respondents from banks and corporates polled by Informist. Of the 12 respondents, only one expects the rupee to fall to a record low this month. The Indian unit had touched a lifetime low of 83.29 in October.
The offshore Chinese yuan has been on a downward trajectory, falling to a nine-month low last month due to concerns about a sluggish recovery in the world's second-largest economy from the impact of COVID-19.
Market participants are not optimistic on the outlook for the offshore Chinese yuan, as they see a revival in the Chinese economy as a prolonged phenomenon, not an immediate one.
"China is not doing so well. Even though it is taking measures to support the yuan, ultimately, structurally the economy is not doing well. So, the rupee might have a bias of depreciation towards 83, but I am not expecting 83.30 (a dollar) to be breached so easily," said Ritesh Bhansali, vice-president at Mecklai Financial Service.
Market participants expect the central bank to continue to provide a cushion to the domestic currency through its dollar sales, and curb runaway depreciation of the unit.
Last month, after the Indian currency finally fell below the psychologically crucial 83-per-dollar mark, the first time since Oct 20, the central bank relentlessly prevented a sharp fall in the rupee through dollar sales.
India's foreign exchange reserves were at $594.86 bln on Aug 25, down $14.16 bln from the recent high of $609.02 bln on Jul 14.
"I don't think RBI should have an issue with the rupee moving to 83 (a dollar) now," said a treasury official with a large engineering company. "I think the whole objective for the RBI would be to not have a very deep or sharp depreciation. They would want to manage the momentum. Slow depreciation should not be an issue."
Another factor exerting pressure on the rupee will be surging crude oil prices, said market participants.
A sharp rise in crude oil prices spells trouble for the rupee as India is the biggest net importer of the commodity.
In August, Brent crude oil prices jumped over 3%. Market players are of the view that crude prices may continue to rise on the back of tightening supplies and expectations that the Organization of the Petroleum Exporting Countries and its allies would extend output cuts to the end of the year.
"Supple-demand mismatch is evident right now, that will keep the oil prices elevated going forward for some time," said Sriram Iyer, senior research analyst at Reliance Securities. "So, I remain slightly bearish on the currency (rupee) for the month of September because of this."
However, some traders said crude oil prices might be a pain point for the Indian unit only if prices sustain above $90 a bbl. At 1837 IST, the November contract of Brent crude on the Intercontinental Exchange was at $87.99 per bbl, against the previous close of $86.83 per bbl.
Market participants said foreign portfolio inflows might continue to augur well for the local unit. They, however, expect FPI inflows to be relatively lower than in the last few months.
For now, when all the other factors are conspiring against the Indian unit, the dollar index may consolidate around the 102–105 levels, giving some respite to the rupee.
The US Federal Reserve's monetary policy moves remain another crucial factor for the Indian currency to assess its future path. The US central bank is largely expected to maintain status quo at its next policy review meeting on Sep 19-20.
According to the CME FedWatch tool, 89% of Fed fund futures traders expect the US Fed to keep the interest rate unchanged at 5.25-5.50%.
At 1838 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.50 as against 103.16 on Thursday. It was at 103.53 on Wednesday.
Key economic data from the US, including on non-farm payrolls and consumer price index, will be crucial in determining the Fed's monetary policy path and, consequently, the direction of the Indian unit.
On the domestic front, market participants will closely monitor what comes out of a five-day special session of Parliament this month – from Sep 18 to Sep 22. Sources told Informist that during the session, the government might bring in four bills, including one on 'one nation one election'.
POLL DETAILS
|
Participant |
Sep-end |
Dec-end |
| DCB Bank | 82.00-83.00 | – |
|
Mecklai Financial Services |
82.80-83.10 |
81.50-82.00 |
| Edelweiss Securities | 82.30-82.90 | 82.50 |
|
HDFC Bank |
82.30-83.30 |
82.00-83.00 |
|
Karur Vyasya Bank |
82.20 |
81.60-82.00 |
| Large state-owned oil company | 83.25 | 84.00 |
| Large Engineering Co | 83.25 | 82.00-83.00 |
| IDFC Bank | 83.00-83.50 | 82.50-83.00 |
|
IBM India |
83.20 |
84.00 |
|
Reliance Securities |
82.75-83.00 |
82.00-83.40 |
| South Indian Bank | 82.50-83.25 | 82.50-83.25 |
| SMC Securities | 83.20-83.30 | 81.80-82.00 |
|
Median |
82.91 |
82.50 |
End
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