Re to remain under pressure, may test new levels: Experts

NEW DELHI: Indian rupee, which earlier this week touched an all-time low, is likely to remain under pressure and may test new levels as a fallout of the US Federal Reserve indicating more interest rate hikes, experts said.

The aggressive rate hikes will dampen demand and increase the possibility of a recession in the US. This could accelerate the pace of capital outflows, weaken the rupee and raise the threat of imported inflation.

The Fed rate hikes narrow the difference between the interest rates of India and the US, making India less attractive for dollar investment. This could lead to capital outflows, and coupled with elevated crude oil and commodity prices may depress the rupee further, experts said.

Also, there is a threat of imported inflation. Even if the global prices remain unchanged, a weaker rupee means India is paying more for its imports and thus higher inflation.

India is 85 per cent dependent on imports to meet its crude oil needs and 50 per cent for its gas requirement.

The rupee, which touched its all-time low of 80.15 against the US dollar in intra-day trade on Monday, rebounded by 39 paise on Tuesday to close at a nearly two-week high of 79.52 against the greenback.

On Wednesday, equity and forex markets were closed on account of Ganesh Chaturthi.

The Indian rupee has been under pressure following the outbreak of the Russia-Ukraine war in February. The Reserve Bank has been regularly intervening in the forex market to check volatility and arrest the declining value of rupee.

The country’s foreign exchange reserves have come down from a high of $642 billion in September 2021 to $564.053 billion in the week ended August 19.

“The strengthening of the dollar will keep the rupee under pressure and the market can test new low levels for the rupee. However, RBI will be proactive enough to not let this be a steep slide and will ensure that volatility and slide of the rupee are minimised.

“Companies in export business always wait for such slides or slippages to recalibrate their hedge portfolios and target better realisation rates for their future cash flows,” opined Hemal Shah, Business Consulting Partner, EY.

On the impact of sliding rupee on IT sector, PN Sudarshan, Partner and TMT Industry leader, Deloitte India, said the industry has been working under margin pressure and the exchange rate gains could relieve that pressure somewhat.

“Having said the western economies, which are the largest buyers of our services, are facing unusual inflationary pressures and may seek to tighten their belts a bit,” said Sudarshan.

Annual sales growth of Information Technology companies, which remained steady in positive terrain even during the pandemic, stood at 21.3 pc during the Q1 of the current fiscal, as per a Reserve Bank data on the performance of the listed private non-financial firms.

The strengthening of the dollar index DXY on the back of over-hawkish messaging from the US Fed Chair is leading to pressure on all currencies including the rupee, he said.

The rupee has weakened by 7.63 per cent against the US dollar since January this year.