The Indian rupee could drop to 84-85 to the dollar by March due to rising crude oil prices, high trade deficit and depleting foreign exchange reserves, Elara Global Research said in a note Monday, when the currency hit a record low of 82.6825.
"The rupee, so far, has borne the brunt of aggressive global tightening as a hawkish (U.S.) Federal Reserve and interest rate differentials weigh on its outlook," Garima Kapoor, an economist at Elara, said.
"Elevated trade deficit prints and the recent surge in crude oil prices add to the near-term headwinds."
Ms. Kapoor expects the rupee to fall to 83.50 per U.S. dollar by December, before slipping even further to 84-85 by March.
The rupee on Monday extended its recent slide to a record low of 82.6825 following the U.S. jobs report.
Higher-than-expected jobs additions in September and an unexpected dip in the unemployment rate cemented bets of another 75 basis points Fed rate hike next month, pressuring the rupee.
Rising oil prices added to the challenges. Brent crude jumped more than 11% last week after the OPEC+ announced its largest supply cut since 2020, despite concerns that could lead to a recession.
Brent crude was last at $97.04, near six-week highs.
"The negative move by OPEC+ may keep oil price firmly in $90-100/barrel range," Kapoor said.
Meanwhile, India's foreign exchange reserves were $532.66 billion as of end-September, their lowest since July 2020. That is a near 16% drop from $633.6 billion at the start of the year.
This decline, Ms. Kapoor pointed out, is the highest among emerging market peers.
Ms. Kapoor said the risk of their call of the rupee falling to 84-85 stem from a premature Fed pivot and higher oil supplies from Iran or Venezuela, though she added that both were likely low-probability events.
"Another risk could be from a possible plan by the RBI to raise foreign capital via NRI (non-resident Indian) bonds," she said.
"An outcome that's possible if import cover falls decisively below seven months (from about nine months now)."