A likely US interest rate hike, coupled with the depreciating Chinese currency and slow pace of domestic reforms, will further dent the rupee value in the upcoming week, experts said on Saturday.
“The rupee value is expected to be under pressure till the US Federal Reserve (US Fed) conducts its FOMC (Federal Open Market Committee),” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
“It is expected that the US Fed will likely increase the interest rates during its meeting slated for next week, this will not only dent the Indian rupee but all the other EM (emerging markets) currencies as well.”
As per Banerjee, volatility is expected next week on account of other major events like the release of domestic inflation data points of consumer price index (CPI) and wholesale price index (WPI).
Moreover, the Chinese currency’s devaluation will impact the rupee value. The Chinese currency is expected to open at a new 4-year low mark on Monday.
“We see the rupee in the range of 67.20-50 on the downside to 68 and beyond. Everything now depends on the extent of the rate hike,” Banerjee added.
However, a run-away depreciation in rupee value is ruled-out as the central bank remains vigilant and ready to intervene.
A US rate hike potentially would lead to massive amounts of pullback of foreign funds from emerging economies like India.
In addition, the US dollar will strengthen against EM currencies, gold and other assets classes.
Besides global factors, a slow pace of domestic reform has led foreign portfolio investors (FIIs) to go in for a selling frenzy in the Indian equity markets, thereby negatively impacting rupee value.
“The consistent selling by the FIIs is expected to continue until fresh positive triggers come in and we see some progress in the parliament towards the passage of key economic legislations,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
“The FIIs have been consistently selling since March.”
On a weekly basis, the rupee weakened by 17 paise at 66.89 (66.8850) (December 11) to a US dollar from its previous close of 66.70 to a greenback (December 4).
The National Securities Depository Limited (NSDL) figures showed that the FPIs (Foreign Portfolio Investors) were net sellers during the week ended December 11. They sold Rs.3,495.29 crore or $522.98 million in equity and debt markets from December 7-11.
The data with stock exchanges showed that the FPIs sold stocks worth Rs.1,437.46 crore in the week ended December 11.
The FPIs have taken out Rs.23,352 crore during the period August-September. In November, the foreign investors have off-loaded stocks worth around Rs.9,000 crore.
Other analysts cited that upcoming political events which are intended to build consensus over the GST (goods and services tax) bill might arrest the rapid fall in rupee’s value.
“There are couple of events that are lined-up starting from Sunday. These events are government’s efforts to build consensus over the GST bill, so that it can be passed during the winter session,” Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
“If the GST bill goes through, then we can see a major reversal in rupee’s position, as chances of a US rate hike have already been priced-in, therefore any movement on GST bill will act as a positive trigger for rupee.”
Furthermore, the rupee is expected to open Monday’s trade on a positive note after domestic monthly factory output data showed robust growth said Hemal Doshi, chief currency strategist, Geofin Comtrade.
The Index of Industrial Production (IIP) data showed that India’s factory output rose sharply by 9.8 percent in October, due mainly to a robust 10.6-percent growth in the manufacturing industry.
The growth had decelerated to 3.84 percent in the month before and was placed at (-)2.7 percent in October of last fiscal year.