Anxiety over an imminent US rate hike, possible escalation of Middle East crises and continued outflow of foreign funds from domestic equity and debt markets would keep the Indian rupee in a tight spot, experts said on Saturday.
On a weekly basis, the rupee weakened by 57 paise to 66.76 to a US dollar (November 27) from its previous close of 66.19 to a greenback (November 20).
“There has been inherent dollar strength and markets would remain choppy ahead of US Fed’s December meeting, critically watched Syrian conflict, and recent terror attacks,” Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
The US dollar is strengthening against emerging market currencies, gold and other assest classes ahead of the US rate hike in December.
Recent US economic data and signs from the US Fed have indicated an imminent rate hike in the US from December.
A US rate hike could potentially lead to massive amounts of pull-back of foreign funds from emerging economies like India.
“Rupee will continue to be on a weaker side unless there are central bank actions. May hold in a range of 67.20 to 66.20 before US Fed meeting,” Sharma added.
The data with the National Securities Depository Limited (NSDL), showed that the FPIs (Foreign Portfolio Investors) sold Rs.1,538.66 crore or $232.44 million in equity and debt markets from November 23 to 27.
The data with stock exchanges showed that the FPIs sold stocks worth Rs.1,492.84 crore in the period under review ended November 27.
The FPIs have taken out Rs.23,352 crore during the period August-September. Till date in November, the foreign investors have off-loaded stocks worth Rs.5,809 crore.
According to Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, post Bihar assembly elections, an old narrative has returned that India could once again face policy logjam.
“A fruitful winter session with passage of the GST (Goods and Services Tax) legislation can undermine that narrative and provide impetus to domestic equity markets and the Indian rupee,” Banerjee told IANS.
The government needs to pass the GST bill in this session to meet the April 1, 2016, roll-out deadline.
“However, a failure to push through key legislations can add a layer of risk to the rupee, causing it to depreciate beyond RBI’s comfort zone of 67.20-50 levels on spot,” Banerjee said.
In addition, analysts predicted that it was unlikely the rupee would fall to levels beyond 66.88 to a US dollar, as the RBI has become aggressive in defending the rupee when it reaches the 67 to a US dollar mark.
On Friday, the Indian rupee dipped to its lowest level against the US dollar in over two years at 66.88, but later recovered to close the day’s trade at 66.76 to a US dollar.
The Indian central bank intervenes in the open markets by either buying or selling the greenback, if the rupee value comes under heavy attack.
“But if the domestic policies stall, and then a risk of a move towards 68-69 to a US dollar may increase,” Banerjee added.