After appreciating by 1.1% in Dec-21, the Indian rupee registered a mild depreciation of 0.4% in Jan-22 closing the month at a level of 74.61 vis-à-vis the US dollar. The currency pair has further weakened from Jan -22 levels primarily due to geopolitical tensions, with all other economic factors taking a back seat. In the near term, the INR will likely continue to face some depreciation pressures amid significant jump in crude oil prices along with fall in equity markets.
Acuité is pleased to share the fourteenth edition (Feb-22) of Acuité Macro Pulse, a monthly economic journal which provides a crisp analysis of both the domestic and the global economic developments.
Key takeaways from 'Rupee' section of the report:
- The ongoing geopolitical tensions between Russia and Ukraine have led rupee to depreciate by a significant 1.2% to 75.51 against the USD vs the level as of Jan-22 and in early March, the 76 level has been breached.
- In the near term, the dollar is likely to continue deriving support from its safe heaven appeal along with aggressive pricing of monetary policy normalization in the US.
- The combination of elevated global commodity prices, sequential improvement in domestic growth (notwithstanding the temporary disruption from Omicron), and gradually increasing vaccination coverage has resulted in expansion of trade and current account deficit.
- While foreign portfolio outflow has picked up in recent months, its impact is getting partly offset by the recent spurt in issuance of foreign currency debt by domestic corporates.
- Acuité revises upwards the forecast for India's current account deficit to USD 50 bn in FY22 from our earlier expectation of USD 46 bn.
- Acuité continues to expect rupee to depreciate moderately in the near term, and project USD-INR pair to trade in the range of 75-76 levels in Mar-22.
Source : Equity Bulls