The rupee breached the 91-per-dollar mark for the second time in a month in the previous session, before ending 14 paise down at 90.92 (provisional) against the greenback, after renewed concerns over global trade uncertainties accelerated foreign fund withdrawal. Forex analysts believe that despite the weak American currency and lower crude oil prices, the selling pressure in domestic equities pushed the Indian currency downward. Market investors were also concerned after US President Donald Trump announced tariffs on European countries if they resisted his plan to control Greenland.
In an exclusive interview with NDTV Profit on Jan. 20, Anindya Banerjee, SVP - Currency & Commodities Research, Kotak Securities said that the persistent FPI outflows is a major contributor foe the downward pressure on the local currency. While explaining the key triggers behind the slump, Banerjee highlighted that rupee could witness further downside risk in the near-term.
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INR Vs USD: Three key factors dragging the domestic unit
According to the Kotak Securities analyst, this month alone, (and month is not over yet), FPIs have sold close to $3 billion in the equity segment. ''There have been some inflows in debt, but overall, its is a net negative on FPIs, which is adding a lot of pressure on rupee,'' he said. Secondly, January has been a tough month for a lot of Asian currencies because of the renewed geopolitical tensions around Greenland, and the higher tariffs on EU from the US.
''So, the global factors are also adding downward pressure on Asian currencies and EM currencies,'' said Banerjee. Thirdly, the analyst said that there is a 'speculative attack' happening on the currency as the Indian rupee is now among the weakest unit across the top 25 global currencies. On Tuesday, the rupee depreciated eight paise to 90.98 against the dollar in early trade, as strong dollar demand from metal importers and persistent foreign fund outflows dented investor sentiment.
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Rupee Outlook: Will INR face further downside risk?
According to Banerjee, a positive trigger for the rupee could be the FTA bewteen India and EU. ''However, that won't significantly change the course, so overall, we could see levels of 91, because we're seeing possible RBI interventions today. In January, we could see levels around 91.5,'' Banerjee told NDTV Profit. Coming to the near-term outlook, the expert claims that over the next 1-2 months, especially in march - the last month of fiscal - rupee tends to see a lot of flows from exporters, so one positive factor could play out on the domestic unit. ''But, the global situation looks challenging,'' he added.
The Kotak Securities analyst added that India is fighting a trade war and in a trade war, currency becomes a weapon, especillay when the overall inflation is low domestically. ''So, the RBI will not target a particular level as its still down 5.5% on a YoY basis. It is still not at a depreciation level where the RBI will be overly concerned,'' he said. However, Banerjee added that the RBI will not like the pace of rupee's depreciation to be fast from here on. ''So at any stage we expect the RBI to intervene. Anythig above the 92-mark and the RBI might intervene aggressively,'' he concluded.
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