The rupee fell to a record low against the US dollar on Wednesday, breaching 54.30, weighed down by a sluggish domestic economy and risk-averse global sentiment. A compilation of analysts' view on the Indian currency and its future prospects follows.
The RBI will impose more "drastic" controls on the rupee to shore up investor confidence, Suresh Kumar Ramanathan, CIMB Investment Bank's regional rates and
"From here, expect some form of drastic controls on INR," he added. The measures may include raising the bar on how much dollars exporters need to convert to rupees, Ramanathan said, adding that RBI may also target repatriations or outflows.
"The rupee will most likely remain weak in the short term as is the case with all Asian currencies due to global risk aversion. Asian FX has weakened by 0.8-0.9% today and so has the Indian currency. A view on levels in the next quarter will depend on how the structural risks in euro zone and global growth pans out. For India, weak fundamentals are another worry. But this doesn't mean that if the dollar weakens then the rupee won't appreciate," Rohit Arora, fixed income strategist, Barclays Capital, said.
"Where the rupee goes will determine the stock market movement and, in the short term, the rupee only looks set to fall. If the rupee breaks 54.5 (rupees to the dollar), then we should prepare for 56, and that will bring the Nifty down to 4,600 points," Kishor P Ostwal, Chairman, CMD Research, said.
"Unfortunately for the rupee, this is not a great environment to run a current account deficit and thus be reliant on capital inflows from foreign lenders. New highs on USD/INR mean fresh air to the top side. Net foreign purchases of Indian equities YTD USD 8.8 billion means lots of capital could be pulled from India if the mood doesn't improve. A rare positive is lower oil prices," Sean Callow, senior currency strategist, Westpac Banking, said.
"Suspect only radical steps by RBI - or sudden action by foreign central banks and/or G20 - will stop a push through 55 and quite possible higher," Callow added.
"I think the rupee is likely to touch 56 to the dollar by June-end. As of now, the only support can come from the Reserve Bank of India. There is no dollar supply in the market and exporters are not selling," Deepak Kundu, dealer FX and rates, ING Vysya, said.
"The stress on Indian currency deriving out of the worries from the global conditions have increased significantly. The issue now focuses squarely on capital flows and if a heightened risk aversion globally would significantly lead to a drying up of the capital flows," Indranil Pan, Chief Economist, Kotak Mahindra Bank, said.
"Significant firming of the dollar is also adding to the rupee depreciation pressures. Attempts by the RBI to contain rupee depreciation is only likely to worsen rupee liquidity conditions. A difficult scenario presently for the policy makers," Pan added.
"The level of 55 rupees to a dollar is very much possible. The RBI can intervene strongly. But, for the rupee, given the global environment, and the dollar strength, RBI can contain the fall, but not control it," Ashtosh Rana, Head of Foreign Currency Trading, HDFC Bank, said.
"Given the one-sided bias in the markets, there was little that the central bank could unilaterally do, especially as EUR/USD is tumbling fast and stark losses in the stock markets. USD/INR in unchartered territory, approach of 55.00 doesn't seem too distant," Radhika Rao, Economist, Forecast PTE, said.
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