In a note on Monday, Elara Global Research said, rising crude oil prices, high trade deficit and dwindling forex reserves could lead the Indian rupee to fall to $84-85 by March, when the currency hit a record low of 82.6825. .
“So far, the rupee is bearing the brunt of aggressive global tightness, as a hawkish (US) Federal Reserve and interest rate differentials weigh on its outlook,” said Garima Kapoor, an economist at Elara.
“High trade deficit print and the recent surge in crude oil prices added to the near-term headwinds.”
Kapoor expects the rupee to fall to $83.50 per US dollar by December, while it will fall further to 84-85 by March.
The rupee on Monday extended its recent fall to a record low of 82.6825 following US jobs report.
Higher-than-expected job growth in September and an unexpected fall in the unemployment rate led to a further 75 basis points Fed rate hike next month, putting pressure on the rupee.
Rising oil prices added to the challenges. Brent crude jumped more than 11% last week after OPEC announced its biggest supply cut since 2020, despite concerns that it could lead to a recession.
Brent crude was trading near a six-week high at $97.04.
“A negative move by OPEC may keep oil prices firmly in the range of $90-100 per barrel,” Kapoor said.
Meanwhile, India’s foreign exchange reserves stood at $532.66 billion at the end of September, the lowest since July 2020. That’s a drop of about 16% from $633.6 billion at the start of the year.
Kapoor said the decline is the biggest among emerging market competitors.
Kapoor said the risk of the rupee falling to 84-85 stem from a premature Fed pivot and higher oil supplies from Iran or Venezuela, though he added that both were less likely events.
“Another risk could be from the possible scheme by RBI to raise foreign capital through NRI (Non-Resident Indian) bonds,” she said.
“An outcome is possible if the import cover is conclusively reduced by seven months (from about nine months now).”
(Reporting by Nimesh Vora; Editing by Savio D’Souza)