According to a leading private bank in the nation, the Indian rupee, becoming Asia’s poorest performer in 2022, is projected to continue losing money in the following fiscal year.
The rupee would remain weak in the next fiscal year due to “a much higher current account deficit,” according to Neeraj Gambhir, group executive for treasury, markets, and wholesale banking at Axis Bank NSE -1.02%, in a Bloomberg TV interview.
For the most of (fiscal) 2023, “we haven’t seen a big reversal of capital outflows that we saw.”
The dollar gained strength last year due to the Federal Reserve’s vigorous tightening of monetary policy as well as India’s worsening foreign finances, which contributed to the rupee’s over 10% drop. According to Gambhir, the Reserve Bank of India may soak up any inflows to increase its foreign currency reserves, a move that would potentially be detrimental to the rupee.
In order to control the rate of depreciation, the RBI “had burned up a very considerable amount of reserves over the past year,” according to Gambhir. If money starts to flow back into domestic markets, that will be utilised to replenish those reserves.
He does, however, forecast a gentler decline of 2% to 3% in the fiscal year that begins on April 1 rather than a rapid decline. On Friday, the rupee was trading steadily at 82.57 to the dollar. The terminal rate and the RBI are quite similar. We anticipate more rises of 25–50bps. A 25bps increase is planned for the February policy; beyond that, it will depend on statistics.
Given absolute yield levels, we see a resurgence of interest in Indian bonds as the policy normalisation campaign of the RBI comes to a conclusion. For the next several months, 10-year bonds will trade between 7.25% and 7.5%. Expect the budget to continue on the road of budgetary consolidation. In the next fiscal year, there may be an increase in the issue of rupee bonds. Sales have been impacted this year by the sharp normalisation of interest rates. Because authorities have encouraged local businesses to utilise the bond market rather than the bank loan market to finance their funding needs, domestic bond market issuance has increased over time, and he expects that trend to continue.