Though the rupee
saw its sharpest fall in a day since July 3 of 24 paise to hit 64.08 against the US dollar
(USD) on Thursday, the Indian unit is in no hurry to breach 60 levels in the near term, suggests the latest report by Tanvee Gupta Jain, an economist with UBS.
The USD/INR pair has been among the better-performing currencies in emerging markets, appreciating 5.9% thus far in calendar year 2017 (CY17). On Thursday, however, the Indian unit lost ground on reports of escalating India's geopolitical tension with China
amid developments relating to North Korea and the US.
came under pressure against the US dollar
and fell to the lowest level in a week after geopolitical tensions weighed on domestic as well as global equities. Asian currencies also weakened against the US dollar
on weak global sentiment,” says Gaurang Somaiya, research analyst (currency) at Motilal Oswal.
“Weakness in domestic equities could continue in Friday's session and that could further weigh on the rupee.
On the domestic front, market participants will be keeping an eye on industrial production (IIP) data and slower-than-expected growth could keep the rupee
under pressure. For the day, the USD/INR pair is expected to quote in the range of 64.00 and 64.45,” Somaiya adds.
Going ahead, UBS
believes, there are few triggers for a sharp rally from its current level. For one, the debt inflow is likely to become much slower (G-Sec limits are almost fully utilised and will be raised $1.25 billion in October), while equity flow is likely to be constrained by elevated growth expectations.
That said, UBS
believes believe pursuing structural reform by policymakers could help further strengthen the rupee
from its current level.
"The most critical reform that we will watch for includes resolution of stressed assets in the banking system, GST progress and easing supply-side bottlenecks to help turn around the investment cycle," UBS
The overall risks to India's external position have also reduced over the years, UBS
feels. Narrowing of the current account deficit to 0.7% of GDP
in FY17 as compared to 4.8% in FY13, stable foreign direct investment (FDI) and forex reserves of $393 billion in July 2017 are the other factors UBS
cites that provide adequate cushion to the rupee
against the volatility due to global risk aversion.