As the economist John Maynard Keynes has said: “The markets can stay irrational longer than you can stay solvent."
The rupee got direction after the RBI policy review, having traded near the 74.50-74.70 zone ahead of the event. US CPI data proved to be a game-changer for major markets as well as the rupee. Momentum picked up sharply in the USD-INR pair, currently hovering near 75.60 -- the highest level recorded since December 22, 2021.
Negative factors for the rupee
Positive factors for the rupee
RBI forex reserves, long forwards: The forex reserves of $631 billion and $49 billion forward books could support the rupee. Some respite can be seen if the central bank thinks it wants to support the currency.
India’s biggest IPO: LIC has filed its draft papers with markets regulator SEBI for its much-awaited IPO. How much will be allotted to FIIs and FPIs is yet to be finalised, and hence the impact is not known.
Outlook
A hawkish Fed, Russia-Ukraine tensions, changes in energy prices, uncertainty over state elections and FII outflows will surely outweigh positive factors such as the RBI’s forex reserves and the LIC IPO. The rupee should further depreciate towards 76.30 levels in the near term. In case of further outflows by the end of the current financial year, one can expect the USD-INR pair moving towards 76.80-77.00 levels over the medium term.
On the flipside, 75.20-75.00 will act as a crucial support level for the pair. If it does break this support zone, the likely range for the pair would be 74.50-75.50. However, that will also be an opportunity for the importers to buy on dips, and keep hedges for atleast 40-50 days of payables.
--Amit Pabari is Managing Director at CR Forex Advisors. The views expressed in this article are his own.
First Published: Feb 16, 2022 11:38 PM IST
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