Rupee appreciation may fizzle out at 80

November 15, 2022

The Indian rupee may be settling in a new normal of 80 to 83 to the dollar, as elevated energy prices and shifting foreign portfolio flows over the short term exert pressure on the exchange rate. Despite the rupee recovering from a record low of 83 to a dollar in October, the local currency may find it difficult to sustain levels below 80, industry executives and analysts said.

The rupee is unlikely to remain consistently below the 80-mark over the next three to six months, said Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel Ltd, a view shared by currency analysts and economists.

“Fundamentally, I don’t see energy prices dropping below the lower band of $80-100 per barrel range quickly, simply because extra capacities to cater to global demand aren’t in place. While flows (foreign portfolio investments in equity) could revive, global energy costs are unlikely to decline significantly to pull down India’s import bill. Oil could trade at $90-95,” Rao said.

On Monday, the rupee weakened 45 paise to the dollar to close at 81.26, according to Bloomberg data. On Friday, the local unit gained the most in four years, rising over 100 paise after US retail prices grew far slower than expected, rekindling hopes that the Fed would temper the pace of rate hikes.

Encouraging company earnings could attract foreign flows; however, if the valuations of US and Chinese markets are more attractive, FPI investments would flow to those markets, at least in the short term and cap rupee appreciation, Rao said.