Rupee may face stronger headwinds this month

July 12, 2023 10:07

After witnessing a 0.16 per cent appreciation in the past six months, the rupee may face headwinds in July due to the strengthening of the dollar as major central banks hint at more rate hikes during this calendar year.

The median of a Business Standard poll of 10 respondents puts the rupee at 82.05 versus a dollar at the end of July. A majority of respondents see the Indian currency depreciating up to the 82.25 level by the end of this month. Analysts now expect the dollar index to rise, thus weighing on the Indian currency.

"Most central banks have been hawkish against the expectation and they are not yet done with their interest rate hikes. So, expect one or more interest rate hikes in the US, UK, and Europe," said Ritesh Bhansali, vice-president at Mecklai Financial Services.

"The data coming out of the US is firmer than expected. Additionally, the previous expectation was that central banks would start cutting rates by the end of the year, but the market is now coming back to reality -- there are going to be rate hikes and central banks will not reduce rates. So, you will see the dollar index well supported at higher levels."

The rupee appreciated by almost 70 paise in the first six months of this calendar year, on the back of strong FPI inflows.

A few analysts are of the opinion the positive domestic growth outlook may keep attracting foreign portfolio flows into Indian equities, which may keep supporting the rupee. "FPI inflows have been really strong, creating a very strong sentiment, which is obviously supporting the rupee," said Kunal Sodhani, vice-president at Shinhan Bank.

"Also, inflation is moving left in the comfort band of 2-6 per cent. Good growth prospects, along with Brent crude prices consolidating between $70 per barrel and $80 per barrel, have been portraying a strong macro outlook for India."

-- Anjali Kumari/Business Standard

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