The rupee weakened past the psychologically important 68 to a U.S. dollar level for the first time since June as expectations that the Federal Reserve will raise interest rates next .
“The rupee is likely to touch 69 per U.S. dollar by January-February,” said K. N. Dey, Executive Director, Mecklai Financial Services Pvt. Ltd. “After the announcement of demonetisation, coupled with the victory of Trump, the rupee has come under pressure.” The rupee touched its lowest on February 25, 2016 at about 68.89 per U.S. dollar.
Persistent pressure
“The Indian currency will remain under pressure for some time,” Mr. Dey said.
While the RBI stepped in to ease volatility in the foreign exchange market by selling dollars through select state-run banks, dealers said it did not protect any particular rate in keeping with its policy of not targeting a specific exchange rate and only intervening to curb volatility.
“The probability of the U.S. Fed hiking interest rates in December meeting is very high,” said N. S. Venkatesh, Executive Director, Lakshmi Vilas Bank. “This has made the dollar stronger against all major currencies.”
FCNR redemptions
Redemptions of foreign currency non-resident (FCNR) deposits were also adding to the pressure, Mr. Dey said. “FCNR outflow is also abetting the depreciation. This may also put pressure on the rupee, which was steady for almost ten months,” he said.
“Huge FCNR outflow is likely to be witnessed in the second half of November,” said Abhishek Goenka, CEO, IFA Global, a leading forex advisory firm. “This will impact the rupee.”
Mr. Dey said there would be weakness in the home currency on account of slower growth due to the impact of demonetisation.
Ambit Capital in a report on Friday almost halved its forecast for GDP growth for the current fiscal year ending March 31, 2017, to 3.5 per cent, from an earlier projection of 6.8 per cent citing the impact that demonetisation would have on the availability of cash.
“After demonetisation, CASA (current account, savings account) has increased and the banks are flush with funds. This may also help credit offtake at reduced interest rates,” said Mr. Goenka. Banks have already cut deposit rates.
According to Mr. Goenka, the rupee is likely to touch 68.50 to 69 levels by December 2016 - January 2017.
