Rupee expected to depreciate further to 62.4 in January: ZyFin Research

Declining net exports and slow recovery in Indian economic activity prime reasons

ZyFin Research's Forex Forecast indicates that the rupee will weaken further over the coming month to 62.4 by January 2015. This would be a 10-month low against the US dollar (USD) for the rupee. Indian exports have once again come under stress, leading to a run on its USD reserves. Additionally, an uncertain economic recovery is not helping India's investment rating, thereby leading to a USD outflow. An improving US economy accentuates the threat of reduction in demand for rupee in favour of USD among foreign institutional investors (FIIs).

The Reserve Bank of India (RBI's) decision to maintain a high interest regime should, however, help in checking any major volatility in rupee exchange. Furthermore, with economic growth gathering momentum over the course of 2015, we expect the exchange rate situation to improve towards the second half of the year and attain a level of around 58 per USD by October.

The ZyFin Forex Forecast is an estimate of INR-USD exchange rate (monthly average), three months ahead of time. One-of-its-kind in India, it can be used by trade analysts, investors and market participants to devise trading and hedging strategies.

Giving his views on the January number, Debopam Chaudhuri, Chief Economist, ZyFin Research, said, 2014 remains a volatile year for the rupee exchange rate, despite some significant recovery in India's current account deficit. With an expected rise in US interest rate regime, there is a high probability of a significant decline in demand for rupee from FIIs in the short run, leading to further depreciation. In this context, the RBI's decision to not cut rates may help reduce the volatility in exchange rate until India regains its position as a lucrative investment destination.

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