The rupee sank below 67-mark against the US dollar on Monday, prompting economists to forecast its fall to 70 within this calendar year.
They are expecting the rupee to tumble to the 70 level if crude prices continued to climb up and India’s trade balance with the US deteriorated further.
D K Srivastava, chief policy advisor, EY India told DNA Money that he sees rupee stabilising at 70 in a quarter or so, with US pressure on India’s trade and crude likely to soar more.
“I would presume it (rupee) would stabilise around 70 (against the US dollar). It would take a little while for it to reach that mark – at least a quarter or so. This would be due to US pressure on both India and China. China is facing a trade deficit in this quarter with US while India’s trade balance with US is also deteriorating,” he said.
Richa Gupta, senior director and senior economist, Deloitte India, did not expect the rupee to hover around 70-mark for long.
According to her, the Indian currency is likely to be in the range of 65-68 in the current year.
“We don’t expect it to stay at 70, even if it goes there. There will be a correction, and then it (rupee) will come down again. It will probably remain in the range of 65-68. It may go down to 70 because the crude is rising and the dollar is strengthening. It may go down to 70 but that rate will hurt imports and therefore there might be a correction. This is our expectation,” she said.
The rupee plunged to a 15-month low on Monday at 67.14 against the US dollar, down over 27 paise from its previous close of 66.87 per US dollar. It slipped to that level on rising global crude oil prices and a stronger dollar.
Several polls on the trend of Indian rupee have revealed that it is likely to breach the 70-mark this year. Deutsche Bank, DBS Bank, Bank of America, Yes Bank, IFA Global and Edelweiss Financial Services reportedly predicted the local currency to hit the 70-mark or fall beyond it.
EY’s Srivastava said India’s relatively low inflation, in general, had till now kept rupee from falling more sharply than it did.
He also believes that if India’s growth further picked up and investment increased then the rupee could appreciate on its own. Srivastava said there were already signs of a robust growth visible in the service sector.
“If India’s growth picks up and investment flows improve, rupee could rise on its own otherwise it would require (central bank) intervention. Growth is robust. Services sector is picking up. There are clear signs through PMI. One has to see whether this can be sustained,” he said.
He also said that improving private investment, not external but internal, could check the fall in rupee to 70 and below.
Deloitte’s Gupta sees a weaker rupee putting a stress on the fiscal deficit target for the current fiscal but she said it would depend on the revenue collection.
According to her, more than fiscal deficit, it would be the current account deficit (CAD) that would be strained due to a depreciated rupee.
She too felt that revival in economic growth would stop the free fall of rupee to some extent.
Gupta said any call by the RBI to intervene would be taken only after studying its impact on the bond market, yields and inflation.
Srivastava was of the view that rupee could be allowed depreciate to more extend; “Right now, the rupee was appreciating out of turn. So, I don’t see the need for invention for some more time. To some more extend, the rupee can be allowed to depreciate”.