A delay in FPI inflows till, say December, may drive the rupee beyond 70 against the dollar and RBI may issue NRI bonds to arrest the fall, says a BofAML report A strengthening US dollar, lack of foreign investment and concerns over rising crude oil prices are likely to keep the rupee under pressure this week and may push it past the 70/Dollar mark, say bankers. The Reserve Bank of India (RBI) will certainly not be comfortable with that expensive a rupee and would strongly defend the currency, they said. According to bankers, 69.30 remains a crucial level for the rupee.
The rupee had touched an all-time low of 69.10 against the dollar on 28 June. It closed at a lifetime low 68.95 on Thursday. “Concerns over widening current account deficit due to higher crude oil prices and demand for dollar from oil companies and general importers is impacting the rupee. It may briefly touch the 70 mark this week but would not remain there,” said a senior bank official.
Those companies who have to repay their external commercial borrowing (ECB) are also stocking up the US currency, a bank treasurer said. “The RBI won’t allow the rupee to fall below 69.30. If it breaches this level, the rupee will touch the 70 level in no time,” said another banker. The central bank has always stated that it does not target any level of the domestic currency, but intervenes in the foreign exchange (forex) market to check its volatility.
India’s forex reserves stood at $ 406.058 billion on 29 June.
According to analysts, the US-China trade war is putting pressure of all Asian currencies, but rupee is the worst hit so far. Inflow of foreign portfolio investments (FPIs) into the domestic equity market has also come down due to the US-China trade war, said another banker.
According to a report by Bank of America Merrill Lynch (BofAML), RBI rate hikes often hurt the rupee. The rupee has depreciated 1.9% since the repo rate hike on 6 June. A delay in FPI flows till, say December, may drive the rupee beyond 70 against the dollar and RBI may issue NRI bonds to arrest the fall. “We think RBI may issue NRI bonds to raise $ 30-35 billion to comfort the forex market, if FPI flows do not revive by the December quarter,” BofAML said in the report. If lack of FPI flows force RBI to sell $20 billion, it would have to do open market operations (OMOs) worth $50 billion to contain lending rate hikes, the report had said.