The Indian rupee could further plummet to as low as Rs81 per dollar, or 22 against dirham, in the next five to six months, currency experts and analysts warned.

The rupee, which has been battered by a persistent surge in foreign fund outflow, a strong dollar, and widening deficits due to a record oil price spike, is facing further headwinds in spite of the actions taken by India’s Reserve Bank to stem its freefall, they said.

The forecasts by experts from UBS AG, Nomura Holdings, and Bloomberg Economics show that the rupee, one of Asia’s worst-performing currencies, dropping as much as 4.0 per cent from the current level of Rs77.66 against the dollar in the backdrop of deterioration in India’s external finances. Forwards are also pricing in a similar weakness for the rupee despite the assurances by the RBI Governor Shaktikanta Das that the apex bank won’t let such a runaway decline happen.

The rupee declined about 1.6 per cent in May, the biggest drop among emerging Asian currencies. It is currently at 77.66 a dollar, after hitting a low of 77.92 last month. So far this year, the greenback is up over 4.4 per cent against the rupee.

According to analysts, with a flight of nearly $23 billion out of India since October 2021, the nervousness of foreign portfolio investors (FPIs) is quite palpable in the stock markets. “This protracted exodus, the longest since the 2008 subprime crisis, is visible across companies and sectors. At 22 per cent, the FPI shareholding in India’s top listed companies sank to at least a six-year low in March after five successive quarters of decline.”

Bloomberg Economics predicted that the rupee would fall to 81 a dollar by the end of November while Nomura Holdings said the currency would cross 79 by the end June. Standard Chartered also sees a similar level by the third quarter.

Rohit Arora, the emerging markets Asia strategist at UBS, said “a grind higher for USD/INR from here toward 80 in the next couple of months is not a big ask” as higher oil prices threaten to widen India’s current-account deficit to at least 3.0 per cent of the gross domestic product, compared to a 2.0 per cent sustainable level. “Nor do I think 80 is a runaway depreciation by any metric. It’s a very modest adjustment of a currency with deteriorating fundamentals,” Arora said in a report.

Currency pundits say surging crude prices, pullout by foreign portfolio investors from Indian equity markets, broad dollar strength, and firm US bonds are among the reasons for weakness in the rupee.

Analysts argue that since the underlying fundamentals of the Indian economy have deteriorated, the rupee’s further plunge is unstoppable in the near term.

“We have been a little more bearish than consensus because we think the underlying balance of payments dynamics have deteriorated quite significantly,” said Divya Devesh, head of Asean and South Asia forex research at Standard Chartered, Singapore.

Amit Pabari of CR Forex Advisors said an elevated dollar index, inflated crude oil, FII’s outflows, and a rise in bond yields have mounted pressure on the rupee. “However, RBI with its pile of $600 billion reserves has done a fabulous job in curbing the volatility and preventing the pair to break past 77.80 levels for over a month. If yet again RBI manages the pair below 77.80 and offers a rate hike as expected, we might see rupee coming back to 77.10-77.40 levels.”

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