The time has come to bid farewell to the year 2022. The new year is ready to enter. In such a situation, it is also necessary to discuss how the Indian currency, which has been continuously sliding downwards in the last year, will be in the new year against the dollar. Let us understand from the point of view of experts whether the rupee will continue to fall in the new year or its days will be long.
Currency market experts believe that during the first six months of the year 2023, due to global economic uncertainties, the Indian rupee market may witness volatility. Experts believe that the global recession, which is being feared, and Kovid may also contribute to pushing the rupee toward the fall. However, money market dealers believe that the rupee may strengthen in the second half of 2023, as central banks are expected to have raised their interest rates to the highest levels by then, and inflation would have been relieved.
# Fluctuations in the rupee may continue in the new year as well
According to Anindya Banerjee, VP, of Kotak Securities, during the first six months of 2023, the global market may remain affected due to the uncertainties of recession. However, he also said that the economic condition of the European market could improve to some extent, as the worst that could happen in terms of energy prices does not seem to be happening at the moment. Meanwhile, if there is news of the end of the conflict between Russia and Ukraine, then it will also act as a lifesaver for the market.
According to Banerjee, due to global economic concerns, there may be volatility in the domestic currency market. A report issued by IDFC First Bank, released on December 20, said that the US Federal Reserve slowed down the rate of an interest hike in December, but its comments are still pointing toward a further increase in rates. According to the report, the Fed is not only combating inflation but also has to take care of market expectations, worried about the uncertainties of growth.
# In which range can the rupee trade in the new year?
According to market experts, in 2023, the rupee may trade in a wide range of Rs 79-85 against the US dollar. During the first six months of the new year, the currency market may see trading in the range of Rs 80 to Rs 82. In the second six months of the year, the situation may improve in terms of the rupee. According to HDFC Securities Research Analyst Dilip Parmar, in the new year 2023, we can see the movement of the rupee between Rs 79 to Rs 84. The first six months of the year can be challenging in terms of rupee strength.
According to Banerjee of Kotak Securities, in the second half of the year, a reduction in interest rates by central banks and relief in inflation may strengthen the rupee. A further rate cut by the US Fed in the second half of 2023 could see weakness in the dollar. On the other hand, according to Parmar, flexibility in monetary policy from global central banks, the inclusion of Indian bonds in the Global Bond Index, the inflow of foreign capital, etc. can play an important role in strengthening the rupee.
If the strength of the rupee returns, there may be an increase in foreign exchange reserves
Forex dealers said a stronger rupee could help the central bank to bring in forex reserves to levels seen during the Covid pandemic. "RBI may use the period of dollar weakness to raise forex reserves. This will prevent the rupee from falling below 81 levels," Gaura Sen Gupta, Economist, Economics Research, IDFC First Bank, said in a report.
Gupta said, “Market apprehensions and Fed's stance may limit the rupee to lower levels of Rs 83.50. The RBI has been intervening in the forex market for the last few months to save the rupee from falling sharply. Meanwhile, the central bank has spent heavily on its foreign exchange reserves.
# Foreign exchange reserves increased by $ 30 billion in the last month
But in the last five weeks, due to the stability of the rupee, India's foreign exchange reserves have increased. According to RBI data, the country's forex reserves have increased by more than $30 billion since November 18. According to Swati Arora, Senior Economist, HDFC Bank, RBI intervention is likely to continue to keep the rupee stable. "The central bank is not defending any levels, but it will intervene to prevent sharp volatility or a fall in the rupee," Arora said.
So far in 2022, the rupee has depreciated by about 10 percent and crossed the Rs 82 per dollar level. This sharp fall in the rupee was witnessed due to continuous pullout by foreign institutional investors (FIIs) and aggressive rate hikes by the US Fed. Despite this, dealers believe that the rupee remains more stable against others including the pound sterling, euro, and Japanese yen.
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