Expanding COVID-19 pandemic may take rupee to 75 vs the dollar

In past 20 days, it has been clear that the transmission of coronavirus outbreak all across the world has been monumental. As more and more countries started detecting cases, the swift and ferocious COVID-19 has now become the world’s emergency. It is one of the biggest threats to the global economy and the financial markets are looking at it as a ‘black swan event’. 

The only respite to the market sentiment is stimulus measures that nations are implementing to counter the economic impact from the coronavirus. Taking cues from the Fed, Bank of Canada, Reserve Bank of Australia and Bank of England, too, cut their policy rates. 

To deal with the extreme selling pressure witnessed worldwide, RBI offered $2 billion swap to deal with the currency swings. The recent economic data – CPI and IIP – may push the Reserve Bank of India (RBI) to follow its global peers and lower benchmark policy rates anytime soon or at the next monetary policy statement on April 3. 

In the current situation, not only is an RBI rate cut seen imminent, there are speculations over 50-bps cut in the repo rate as against the earlier view that the central bank would use its remaining monetary policy ammunition sparingly. Along with RBI rate cut, market focus will also be on fiscal measures from the government.

Going ahead, the rupee will continue to follow the path of other emerging market currencies. The widening local and global pandemic of coronavirus may take the rupee to a fresh record low of 75. However, the RBI should curb market volatility and arrest the rupee’s depreciation.

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Rahul Gupta is head of research for currency at Emkay Global. Views are personal.