The rupee is currently hovering around the 92.2 mark against the US dollar, reflecting growing concerns over India’s import bill and external balance. Rising oil prices due to the fierce conflict in the Middle East have increased the risks of currency depreciation.
Talking about the outlook, Naveen Mathur from Anand Rathi Partners said if geopolitical tensions continue and oil prices remain high, the rupee will weaken further in the near term.
He said: “As I said earlier in the call, the rupee is bearish. The rupee is around 92.21. A further fall to 92.30 or 92.40 seems likely. A significant increase in Middle East conflicts and higher crude oil prices will definitely weigh on the rupee against the dollar,” he said.
He pointed out that the currency had previously found some support due to central bank intervention, but global developments have once again weighed down against the rupee.
“We saw an RBI intervention last week that pushed the rupee to around 91.50 against the dollar. But after that, the surge in the Middle East has put pressure on oil, and WTI and Brent are pointing at around $114 a barrel, which is only up $25 in the opening session.” Mathur said.
According to him, the combination of high oil prices, geopolitical uncertainty and a strengthening dollar has weighed heavily on currencies in emerging markets, including the rupee. 99.60 against the dollar from a low of 95 nearly two months ago, with crude oil and Middle East tensions all weighing on the rupee.
Another key factor that could increase pressure on the rupee is increased demand for dollars from oil marketing companies (OMCs), which generally increase their purchases when oil prices rise.
“Exactly, that will be the case. Dollar demand will be there, which will further hurt the rupee against the dollar. RBI intervention is expected to keep the rupee,” Mathur said. Mathur said.
However, he noted that the central bank’s focus remains on managing volatility rather than defending the exchange rate at a particular level.
“RBI has said that they will not see any particular level for the rupee against the dollar. They will maintain volatility, or prevent volatility. At the same time, imports, fiscal deficit, and current account deficit will be the key focus, and hence RBI’s intervention will be important.”
He also suggested that state-owned oil companies and large public sector companies should accelerate dollar purchases in the current environment.
“I am sure the ONGCs or PSUs of the world will certainly be looking to buy dollars at this stage,” noted Mathur.
Whether the RBI will step in again to support the rupee remains uncertain, especially as global currency flows currently favor the dollar.
“It is anyone’s guess, but it will be a decision of the RBI’s monetary policy stance to keep the rupee at a certain level. If that is the case, the RBI may intervene before the rupee depreciates further against the dollar.” he said.
For now, the rupee’s move may depend on how the geopolitical situation unfolds, along with the movement of oil prices and the strength of the US dollar in international markets.
