Will Brexit push Indian Rupee to 70?

A possible ‘Brexit’ is already giving sleepless nights to British Prime Minister David Cameron but far away from the action, even in India, experts are looking at June 23—the referendum day—with a great unease.

Brexit is an abbreviation that refers Britain’s exit from the European Union. 

Rupee, they expect, will see a certain amount of volatility that will add to the already mounting problems like the probable $20 billion in dollar outflows in the next few months.

HDFC Bank, in a report dated June 16 said, “An adverse global risk environment on the back ‘Brexit’ concerns in the near-term followed by the prospect of tighter US monetary policy and concerns about the Chinese economy is likely to restrain fund flows into the domestic markets.”

What they simply mean is that there are enough global cues that is likely to push the Indian Rupee down in the current fiscal and Brexit talks aren’t helping the matters.

The Bank expects Rupee to be in the range of 68.50 to 69.50 to a dollar by end-2016.

On Friday morning, Rupee was trading at 67.22 to a dollar and strengthened over the previous as the current account deficit lowered sharply to just 0.1% in January to March 2016 quarter.

CARE Ratings, too, in May said that Rupee is likely to depreciate in value and trade around 69 to a dollar in the current year. Although its reasoning were more to do with the US Federal Reserve, and FCNR deposits that are coming up for redemption.

Analysts believe that Indian markets won’t feel much impact in the longer term, however, Rupee will be influenced by global risk aversion that Brexit might cause.

If Brexit does happen, British Pound is expected to fall which may affect Britain’s economic growth in the short term. Also, volatility in the currency may increase giving rise to uncertainty in financial markets.

Euro, too, is expected to weaken in the short and near term. This will impact the Rupee negatively as well.

On the other hand, the US Dollar is the only currency that is expected to gain from Brexit as investors tend to run for safe havens every time there is a scare in global financial markets.

A stronger US Dollar means other global currencies will weaken, including Indian Rupee.

According to an Evening Standard poll, since May 53% people now want to exit the EU membership and 47% wants to stay.