From a macro perspective, the impact on the currency hinges on what kind of economic growth is in store. The fact is that the COVID-19 outbreak has not yet run its full course in India. We started with a 21-day lockdown, got it extended to 40 days and now it is 54 days. India’s growth prospects will also determine the kind of capital that flows in. At present, the government has not provided a fiscal stimulus beyond the Rs.1.7 trillion announced in April, and the intervention that has happened is largely on the monetary side, in terms of easing market conditions. If the lockdown is extended further, it will have severe growth implications. This, in turn, will raise the possibility of a negative credit outlook or even a downgrade for India. Regardless of the comfort we have owing to fall in crude oil prices, foreign flows (FDI and FPI) coming back is a little tenuous at this point. Further, remittances from the Middle East, too, would be affected meaningfully. Though we don’t expect high volatility, a gradual depreciation in the currency from the current level by the year-end is quite likely.
Chief economist, NSE
Year-till-date, we have seen Rs.1.32 trillion ($20 billion) being pulled out by foreign investors and that has had impacted the forex market. While there is no denying the damage caused by COVID-19, the news of a vaccine to cure coronavirus could redraw all estimates of GDP and have a positive impact on emerging market currencies. While crude prices have fallen, the increase in excise duty, and pump prices staying at current levels means oil companies can pay the Centre higher dividends, despite the fact that fuel sales are down 50%. Not surprising that bond yields have started stabilising — the 10-year benchmark yield has moved to 6.10% from 6.5%. After the initial burst, debt outflows by foreign investors, too, has slowed down. The trade deficit is down to $9.3 billion compared with the peak of $15 billion. Assuming oil stays at $20/barrel level, India will save $50 billion per annum. The RIL-Facebook deal is also positive for the rupee as more inflows come in. I expect the rupee to possibly get back to 73-74 over the next three to six months.
Treasurer and head-global markets, First Rand Bank