Vijay Valecha , Special to Khaleej Times April 22, 2021
The Indian rupee could fall to 76 versus the US dollar, or 20.7 against the dirham, in the short-term due to a massive daily rise of Covid-19 cases that crossed the 300,000 mark on Thursday, according to analysts.
Vijay Valecha, chief investment officer at Century Financial, said stricter Covid-19-related restrictions and lockdowns could be imposed in most parts of India, which worried investors about more economic pain leading to massive across-the-board selling.
This will benefit the non-resident Indians (NRIs), leading to an uptick in increase in remittances from the UAE.
The rupee opened on a weaker note on Thursday morning, falling below the 75 per US dollar as compared to its previous close of 74.88 on Tuesday. The Indian markets were closed on Wednesday because of Ram Navami, a Hindu religious festival.
The currency was weighed down by foreign fund outflows and heavy selling in stock markets on Thursday.
Reliance Securities analysts said in a research note that the rupee’s weakness could continue but the Reserve Bank of India (RBI), the country’s central Bank, can intervene to rein in market volatility.
India on currency manipulators' list
The US has recently put India on the monitoring list of currency manipulators after the RBI had to intervene in the local currency market, resulting in an increase in the south Asian country’s foreign exchange reserves.
The RBI’s intervention didn’t allow the rupee to appreciate against the US dollar, which tilted trade in favour of India and New Delhi posted a $24 billion (b) surplus with the US in 2020, an increase of $5b.
Valecha believes that this could force the Indian central bank to allow the rupee to appreciate.
He said RBI’s intervention in the forex market reached $131b, or five per cent of gross domestic product (GDP), which is considered substantial for the US Treasury to put India in its "Monitoring List".
Another trigger, he said, is a trade surplus of $20b or more with the US, as imports fell more sharply than exports due to Covid-19-induced nationwide lockdowns and restrictions last year.