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POLL-Indian Rupee Continues Weakness on Current Account and Interest Rate Spreads

By Anant Chandak and Devayani Sathyan

Bangalore, 7 December (Reuters)The plunging Indian rupee will not be able to recoup most of its recent losses over the next year as the ongoing current account deficit and central bank rate hike cycle near the end, according to a Reuters poll.

One of the reasons for the rupee’s 11% year-to-date decline is a widening trade deficit due to rising oil prices and expectations of a prolonged tightening cycle by the US Federal Reserve. INR=IN It hit a record low of 83.29 per dollar in October.

The rupee has gained about 1% since then, betting the Fed will move to a slower pace of rate hikes, but has lagged many emerging market peers. Analysts expect it to continue into the new year.

Later Wednesday, the Reserve Bank of India will cut its repo rate by 35 basis points to 6.25%. Reuters poll Almost done with a more modest rate hike campaign that just started in May.

The rupee traded slightly below Tuesday’s trading levels at 82.00 to the dollar in three and six months, according to the latest Reuters poll of 36 forex analysts conducted Dec. 2-6. surpassed. The forecast ranged from 79.80/$-84.00/$.

At no point in the next year did any forecaster predict that the rupee will rise higher than the 75 per dollar that started in 2022.

It was expected to recover slightly to 81.00/$ by the end of November, but the expected 2% rise is not enough to recoup the losses for the year.

“Given the very wide trade deficit and the mismatch between domestic and foreign demand, the rupee needs to depreciate slightly…My sense is that the RBI will be happy with its current levels.” Axis Capital’s economist.

The RBI has burned over $100 billion in foreign exchange reserves in 12 months to prevent the rupee’s depreciation from spiraling downward.

Foreign exchange reserves rose as the dollar index fell from its peak after hitting a more than two-year low of $524 billion in October, barely surpassing $550 billion in the week ending Nov. 25. is doing.

The price of India’s main import, crude oil, is expected to continue rising next year, averaging $93.65 per barrel Starting at $100.50 this year.

“But even assuming a fall in oil prices, the ‘core’ (non-energy, non-gold) trade balance is historically broad, and even if oil prices fall, BoP (balance of payments) pressures will ease. not,” said Anezka Christophois, EM/FX Strategist at JP Morgan.

“The RBI is unlikely to defend the INR with the same momentum next year,” he said.

(Reporting by Anant Chandak and Devayani Sathyan; Poll by Veronica Khongwir and Dhruvi Shah; Editing by Ross Finley and Angus MacSwan)

((Devayani.Sathyan@thomsonreuters.com; Anant.Chandak@thomsonreuters.com)))

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

https://www.nasdaq.com/articles/poll-india-rupee-to-remain-weak-on-current-account-and-rate-differential POLL-Indian Rupee Continues Weakness on Current Account and Interest Rate Spreads

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