The Indian rupee could end the year higher than earlier forecast, according to a few analysts who have reviewed their calls based on sliding dollar and improving outlook on Asian currencies following the U.S. inflation data.
The rupee, on the back of the softer-than-expected U.S. inflation data, hit a seven-week high of 80.52 per dollar on Monday. That is a more than 3% recovery from the record low of 83.29 it touched around mid-last month.
Currently, spot USD/INR was at 81.36, while the forward rate for December and March is around 81.60 and 82.04.
Bank of America now expects the rupee to be about 81 per dollar by December and at 83 by March, compared to its previous forecast of 84 and 85-levels, respectively.
BofA strategists cited significant repricing of Asian FX due to an accumulation of better-than-expected news on U.S inflation and China re-opening as they revised higher forecasts for other Asian currencies, including the yuan.
Fed rates peaking next year and China finding stability are seen providing Asia with “more policy room and easier financial conditions,” BofA said in a note. This would allow for portfolio inflows into Indian assets, it added.
The rupee will be around 80.50-82 per dollar by December-end as against 81.50-83 previously, said Sakshi Gupta, principal economist at HDFC Bank.
“The extent of reversal in the dollar and the kind of inflows we are seeing into Indian equities are the two factors leading to a change in our levels for the rupee,” she added.
The dollar index last week dropped to its lowest level in almost three months. Indian equities have witnessed foreign inflows of more than $ 3 billion so far this month, according to data from NSDL.
Bank of Baroda’s economist Aditi Gupta, too, offered a similar argument for revising her March target for rupee to 83 from 85.
Still, some analysts disagree that the worst for the rupee may be over.
Gaura Sen Gupta, an economist at IDFC First Bank, maintained that rupee would likely fall to 85 to the dollar by March.
The dollar’s rally is still not over and the loosening of financial conditions on the back of last week’s U.S. inflation reading will likely “make the Fed fight the market” and stay hawkish, she said.
Two Fed officials who have spoken after the U.S. inflation data have advocated smaller sized rate hikes, but flagged that more work needs to be done to bring inflation down.
Bank Dec-22 Old view Mar-23 Old view
(per USD) (per USD) (per USD) (per USD)
BofA 81 84 83 85
HDFC 80.50-82 81.50-83 80.50-82 81.50-82.50
Bank of Baroda 81.5 83 83 85
IDFC First — — 85 85
