Rupee could fall up to 3% in H1

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Mumbai: In the first half of FY19, the rupee could fall by about 3 per cent to the dollar, with the highest crude oil prices in more than three years and a likelihood of faster rate increases by the US Federal Reserve weighing on the local currency, an ET survey showed.

The poll, conducted among 21 market participants, also pointed to a minority view that New Delhi’s fiscal arithmetic faces a challenge from factors that have their origins beyond India’s shores, although North Block had earlier surprised the markets with a borrowing calendar that underscored fiscal prudence in the run-up to general elections.

A majority of the respondents believe that the rupee could trade between 66 and 67 per dollar, with two extreme calls at 67.50. The rupee closed at 65.22 to the dollar on Friday.

“A combination of factors may trigger a fall in the rupee’s value,” said Manish Wadhawan, managing director and head of fixed income, Global Markets, HSBC India. “Rising crude oil prices pose the biggest threat by increasing India’s import bill, while Fed rate hikes may reverse fund inflows to emerging markets. Moreover, the unwinding of monetary stimuli by global central banks could reduce risk appetite.”

Global crude oil prices have risen to $72 a barrel, adding about $5/barrel in the past six trading days amid growing geopolitical concerns. During the same time, the rupee lost more than 0.30 per cent to the dollar.

India is one of the largest oil importing countries in the world, with overseas shipments accounting for four-fifths of the total demand. An increase by a dollar in the price of crude oil inflates the oil import bill by about $700-900 million, shows an estimate by a large foreign bank.

“There are global uncertainties, including the oil price. A net importer, India will have a direct impact of the oil prices rising by each dollar,” said Jayesh Mehta, head of treasury for India at Bank of America Merrill Lynch.

Separately, India’s defence ministry has recently approved purchasing Rs 16,000-crore worth of new equipment to counter terror attacks. Those will be mostly imported, requiring New Delhi to buy more dollars from the local currency market. Hence, defencerelated purchases will put additional pressure on the rupee in the short term, dealers said.

The Anglo-American move on Syria, meanwhile, raises geopolitical concerns. “Oil prices are expected to remain elevated due to geopolitical worries,” said Bhaskar Panda, senior VP, treasury, HDFC Bank.

“International macro, especially oil and commodities, would continue to deteriorate (and) we could see a meaningful impact on the exchange and interest rates,” said Ashish Vaidya, head of trading at DBS Bank India.

The Reserve Bank of India (RBI) is expected to curb wild swings of the local unit that is likely to be on a wek ground to the US dollar.

To be sure, the Make-in-India campaign could well act as a shield against a falling rupee.

“A gradual depreciation of the rupee may not be to the dislike of the RBI,” said Ashutosh Khajuria, executive director at Federal Bank. “The rupee’s fall would be gradual and at a slower pace. A reasonable depreciation of the rupee is expected every year.”

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