India Rupee Faces Further Losses After Series of Lows, StanChart Says

A flower vendor counts Indian rupee bank notes in Bengaluru, India, on Wednesday, Oct. 13, 2021. The rupee has come under pressure as surging commodity prices rekindled worries about inflation and the financial health of the net oil-importing nation. Photographer: Dhiraj Singh/Bloomberg

(Bloomberg) -- The Indian rupee tested a series of record lows in recent weeks and Standard Chartered Plc. foresees more losses for the currency in the coming months.

“The main two factors that are building up that can weaken the rupee are mainly on the worsening trade and capital flow dynamics,” Parul Mittal Sinha, head of India financial markets, said in an interview with Bloomberg TV on Tuesday, adding that that was the outlook of the bank's trading desk. She said the currency may extend its decline to as low as 82 per dollar over the next three months.

India's trade deficit widened the most on record last month as high global commodity prices further raised import costs, data showed Monday. That along with about $29 billion of outflows from the stock market will pile further pressure on the rupee at a time when rate hikes by the Federal Reserve are driving flows to US from emerging markets.

A shortfall in India's current account -- the broadest measure of trade -- may widen to 3% of gross domestic product in the fiscal year ending March 31, Sinha said, nearly double the level seen in the previous year.

The rupee also has room to fall on a real effective exchange rate basis, she said. The RBI's 40-currency real-effective exchange rate stood at 104.90 in May, with a value above 100 signaling overvaluation.

“If you look at rupee valuations on a REER basis, we see further room for correction as rupee is currently valued higher than average historical levels,” Sinha said. “We see another 2% correction in rupee levels or depreciation from current levels.”

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