Rupee may touch 76 levels against dollar in next 3 months with global crude prices remaining elevated: UBS

Rupee has already crossed the 74 mark owing to the continued strengthening of the dollar, lack of foreign flows and higher crude oil prices.

Press Trust of India November 05, 2018 13:06:10 IST
Rupee may touch 76 levels against dollar in next 3 months with global crude prices remaining elevated: UBS

Mumbai: With global crude prices remaining elevated, the rupee is likely to be under pressure, and may touch the 76 levels against the US currency over the next three months, says a report.

The domestic currency has already crossed the 74 mark owing to the continued strengthening of the dollar, lack of foreign flows and higher crude oil prices.

The unit lost over 15 percent since the beginning of the calendar year.

"Assuming global crude prices stay elevated (slightly above $80/a barrel), we retain our bearish view on the rupee and see it plumbing to 76 over the next three months," says a weekend report by the Swiss brokerage UBS.

From April to the first week of August 2018, the RBI has been intervening in the forex markets to contain volatility, which lead to a massive drop in the forex reserves that plunged by $25 billion to $393 billion last week.

Rupee may touch 76 levels against dollar in next 3 months with global crude prices remaining elevated UBS

Representational image. News18.

This has led to two successive repo rate hikes to the tune of 50 basis points in total.

By keeping policy rates on hold in October, the RBI hinted that it will not use interest rate defence as a tool to manage currency weakness, the report said.

Between April and October, the forex reserves has come down by $32.78 billion, while foreign exchange reserves stood at $392.078 billion as on 26 October.

"Unlike in 2013, even as the rupee has weakened by 15 percent calendar year-to-date against the dollar, it remains outside that group of most vulnerable currencies and the countrys forex reserves position is still reasonable," UBS analyst Gautam Chhaochharia said in the report.

He said while the country remains vulnerable in its external position, there is no need to press the panic button for NRI bond issuances, to stabilise the rupee, yet unless it becomes a political issue in the run-up to the 2019 general elections.

"However, in case external stress continues to rise from here (Brent continue to rise towards $100/a barrel and/or the rupee weakens towards the 80 levels, the option of raising dollar deposits ($30-35 billion) could be explored to stabilise the rupee," Chhaochharia said.

The report said the loose monetary and fiscal policy pursued by the policymakers five years ago led to exacerbated macroeconomic imbalances when the US Fed announced the start of tapering.

This caused the rupee to be amongst the "fragile five" currencies.

It believes that the macro fundamentals compare favourably with those in 2013 as policy buffers have been created.

"The inflationary pressures are manageable thanks to lower food prices, and the government remains committed to fiscal discipline although the deficit targets are quite stretched, and even as we expect the CAD to widen to 2.7 percent of GDP in FY19, it is well below the 4.8 percent peak registered in FY13," the report said, adding the RBI's policy tilt is no longer accommodative.

The report further says the current liquidity shortage triggered bydefault by IL&FS and group companies on their debt obligation is a liquidity squeeze and not systematic risk.

"We expect the RBI to neutralise the liquidity squeeze but think that an 'easy money' period is not coming back in a hurry," it added.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

#RajanEffect: Why the rupee crashing to 68 against $ is not a shocker this time
Business

#RajanEffect: Why the rupee crashing to 68 against $ is not a shocker this time

The rupee is back at 68 against the dollar and surprisingly nobody seems to be that worried. Last time, the currency hit 68 under the United Progressive Alliance regime, it had become a political hot potato.

Forget dwindling exports, FDI to rise in FY17 on signs of improving economy, says India Ratings
Business

Forget dwindling exports, FDI to rise in FY17 on signs of improving economy, says India Ratings

FDI in the country will accelerate further on gradually improving economic growth in 2016-17, while focus on ‘Make in India’ would result in a more larger and more stable FDIs