Analysts say that the rupee’s fall since yesterday has been in line with the weakness in the global market, US recession fears, and add to it the geopolitical tensions.
“US recession concerns led to worries about foreign outflows from India and emerging markets,” said Mumbai-based Ajay Kedia of financial services firm Kedia Advisory.
“The fall is attributed to concerns over a potential US recession, which has spurred worries about foreign outflows from India and other emerging markets. The selloff in US and Asian equities, following a disappointing US jobs report, has intensified these concerns, causing significant market jitters.”
The Indian currency will continue to successively test lows in the coming days following a hike in dollar demand from importers. Any indication of a dovish shift in the central bank’s August 8 policy may further push the rupee lower, analysts evaluate.
So, even though the RBI is expected to hold rates this week, any shift toward a neutral monetary policy is not only expected to exert downward pressure on the rupee, the drop will be gradual as the central bank may continue to closely manage the currency, allowing it to weaken incrementally while preventing excessive volatility.
Morgan Stanley has set a target of under 85.2 in a year’s time for the dollar-rupee pair. The rupee ended at 83.75 on Friday, down 1.3 per cent from its 2024 peak in March.
“We believe that the RBI will give USD/INR more flexibility,” Min Dai, a strategist at Morgan Stanley wrote in a note. The pair “grinding above 83.70 is a good indication.”
RBI’s interventions have made the rupee one of the least volatile currencies in the world. One of just a handful of currencies left unscathed by the red-hot dollar this year, it has been trading in a tight range. Its peers have swung from losses to gains after a weakening in the dollar on Federal Reserve rate-cut expectations.
– With inputs from Agencies
