Year-Ender 2022: Will Indian Rupee heave sigh of relief after massive depreciation this year? Analysts decode factors for fall

The Indian Rupee has depreciated nearly 10 per cent this year so far, breaching the key sentiment level of 82 against the US dollar for the first time in history. Several analysts believe despite the crack, the domestic currency is in a better position than foreign currencies when compared to the dollar.

According to analysts, the Indian currency’s depreciation is mainly due to the stronger dollar, which is taking support from incessant rate hikes by the US Fed Reserve to curb soaring inflation. Besides, other factors such as foreign institutional investors' outflows also impacted the Rupee’s momentum.

The rupee has been depreciating for the last five years, however, 2022 was the worst among the last five — in 2021 rupee slid around 1.5 per cent, while in 2020 and 2019, it was down around 2 per cent each, and, in 2018, it weakened over 8.5 per cent. The local currency hit a low of 83.29 against the US dollar on October 20, this year.

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Here are the views we have collated from different experts on the Indian Rupee’s performance in 2022:

Expert: Sameer Kaul, MD and CEO, TrustPlutus Wealth.

Even though the Indian rupee lost nearly 10 per cent against the US dollar in 2022 and breached the psychological 82, it has been much more stable in comparisons to other currencies like the Japanese Yen, South Korean Won, Pound Sterling, and the Euro.

The fundamentals of the Indian economy are strong, and inflation has been low compared to other economies. The dollar is expected to continue deriving support from aggressive ongoing interest rate hikes by the FED in the US along with quantitative tightening, apart from geopolitical risk aversion.

Expert: Vinit Bolinjkar, Head of Research, Ventura Securities

A hawkish US Fed and global inflationary pressures have boosted the dollar relative to other global currencies. To curb inflation, US Fed increased the rates six times in 2022.

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The rise in interest rates on debt securities made the US dollar more attractive for investors and encouraged them to withdraw money from emerging markets (like India) and invest in US bonds/debt securities.

The US dollar’s safe-haven status has helped, encouraging capital flows into the US amid geopolitical uncertainty and fears of a global economic slowdown.

Expert: Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life Insurance

Although we saw India’s foreign exchange reserves remaining comfortable, both trade deficit and Current Account Deficit (CAD) widened sharply due to weak global macros and higher crude oil prices. This led to the Rupee depreciating in the later part of the year and also the fact that the dollar strengthened due to aggressive rate hikes by the Federal Reserve.

Expert: Amar Ambani, Group President & Head - Institutional Equities Head, YES SECURITIES

Fed rate hikes, were the instrumental cause behind the volatility of USD/INR and to some extent FII outflows too had an impact on INR currency volatility. However, the tide seems to be turning, with markets getting a sense of the Fed terminal rate and resumption of FII flows back into the Indian equity markets.

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Expert: Sumit Chanda, Founder & CEO, JARVIS Invest

An aggressive liquidity tightening by the US Fed saw the rupee crossing the 82 per dollar mark. It was marked by heightened volatility, which forced the RBI to intervene. Between March and November, RBI had already sold (Net) over USD 90 billion worth of forex reserves to stabilize the rupee.

The weakness is expected to continue with the rising deficit and capital outflows. We saw a 33 per cent growth in imports while the exports showed a lackluster 12 per cent growth this year. The deficit has caused the CAD to widen and if the trend continues, it will put the rupee under pressure.

For the trend to reverse geopolitical risks should not escalate further and the FIIs and FPIs should continue to be net buyers of Indian equities. Having said that, Rupee at 82 per dollar is very likely by end of this FY.

Expert: Apurva Sheth, Head of Equity Research, Samco Securities

Technically on the daily chart, USD/INR is trading in a 'higher high higher bottom' formation and presently sustaining above its upward rising trend line. The trend is likely to continue, on the upside till the time trend line is intact.

The widening domestic trade balance, surging US interest rates, and rise in the Dollar Index are the root cause behind this brutal fall.

Expert: Sunil Damania, Chief investment officer, MarketsMojo

The dollar strengthened against most currencies this year, pressuring the Indian rupee. The rupee fell around 10 per cent against the dollar in 2022. So far, one of the major reasons for the fall was that crude oil prices have risen significantly. Because India is a net importer, there was a greater demand for the dollar to purchase the same quantity of crude.