The Indian rupee has weakened for five straight months culminating into a depreciation of 4.4% in 2022 with levels currently hovering at 77.8 against the USD.
Acuité expects rupee to depreciate moderately and project USDINR pair to touch 79 levels before Mar-23. Acuité also expects India's current account deficit to widen to more than USD 90 bn in FY23 from an estimated level of USD 47 bn in FY22 amid persistent rise in crude oil price which has again risen to USD 120+ pb.
Key takeaways from Rupee:
1. The dollar is likely to continue deriving support from aggressive pricing in of monetary policy normalization in the US along with geopolitical led risk aversion.
2. The combination of elevated global commodity prices, sequential improvement in domestic growth, and gradually increasing vaccination coverage is resulting in widening of trade and current account deficit for India.
3. Portfolio outflow continues to persist for the eighth consecutive month with markets aligning to US monetary policy normalization and spike in commodity prices amidst ongoing geopolitical conflict between Russia and Ukraine.
4. While anticipated BoP deficit would weigh on INR in FY23, comfortable reserve cover and carry support would prevent excessive weakness.