The Rupee Is Increasing Its Weakness The rupee's depreciation is being fueled by four factors: rising oil prices, a dollar shortage, relentless outflows from equity with a risk of spillover to debt, and the unwinding of the carry trade, according to Anindya Banerjee, Kotak Securities' deputy vice president for currency derivatives and interest rate derivatives.
Unwinding the carry trade, in particular, has the potential to have a far larger impact on the dollar-rupee exchange rate, which is why the RBI is engaging aggressively, Banerjee explained. "Once the rupee sustains itself at 77, the next target is 78 sometime this week, barring a reversal in the oil price," he said.
Given the persistent pressure, the rupee could trade in a band of 76.30-77.30 in the near term, according to Reliance Securities' currency research team. Harihar Krishnamoorthy, FirstRand Bank's treasurer, agrees that the rupee's depreciation would remain. "Clearly, this is a cause-and-effect situation. In the midst of the ongoing Russia-Ukraine war, there are now discussions of a Russian oil and gas embargo. These have been exempt from sanctions thus far, and if they are, there will be a supply shortage "According to Krishnamoorthy. "The rupee's weakness is certain to continue if foreign outflows continue and oil prices continue to rise."