USD INR Predictions

5/23/2018 USD INR Predictions

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USD-INR Predictions Ashwini Dh Nimmikrish Deepa Rao Sejal Tom Rajat Baid Vishal Ram


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Synopsis

The USD-INR exchange rate is an important indicator of investor sentimecan significantly impact not only the fortunes of individual firms and sectalso the government

USD-INR moved from 40 to 51.50 from March 2008 to March 2009.

The US Dollar(USD) against the Indian Rupee (INR) is emerging as a pop

currency pair out of the exotic pairs group.

Indian Rupee (including the Euro) have a market-determined or floatingexchange rate. As India's economy and business climate continue to devgrow, trading the USD/INR pair has become an attractive investment oppfor forex traders.
http://www.dailyfx.com/usdhttp://www.dailyfx.com/eurhttp://www.dailyfx.com/eurhttp://www.dailyfx.com/usd


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Participants in Forex Market

Individuals: tourists, migrants

Firms: importers and exporters

Banks: short position, long position, square position

Governments/ monetary authorities: market interven

International agencies: lending

Two tier market: First tier: ultimate customer and banker Second tier: between banks


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Reasons For Depreciation

Widening current account deficit

Policy inaction: Perception of lack of clarity on the policy front is also fanning sp

demand wherein the Reserve Bank of India (RBI) on one day said it will tighten

and on yet another said it will inject $1 billion in the market.

Low forex reserves: India's foreign exchange reserves are enough to cover impo

only seven months. The forex reserves have declined in the recent months. Duereserves, the RBI can't intervene aggressively in the currency markets.

Growth slowdown: India's gross domestic product (GDP) growth fell to a decad

per cent in 2012-13. The situation is unlikely to improve much this year. Foreign

are pulling money out of the Indian markets due to slow growth.


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Reasons For Depreciation

Dependence on foreign money: India's current account deficit was finanforeign money for the last many years. Withdrawal of money by overseainvestors is leading to the weakness in the rupee.

Recovery in the US:The slow but steady recovery in the US is making thgreenback stronger against other currencies.

Trends in other markets: The rupee is also following the trend seen in thcurrencies of other emerging economies such as Brazil, Indonesia, RussiaSouth Africa.

Speculative trading: Speculative trading in the currency markets is puttifurther pressure on the Indian rupee.


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Effects of Depreciation on Indian Economy

Countrys fiscal health:Frail rupee added fuel to the rising import bill ofcountry and thereby increasing its current account deficit (CAD). A widenis bound to pose a threat to the growth of overall economy.

Importers/Exporters: Importers strongly felt the pinch of falling rupee awere forced to pay more rupees on importing products. Conversely, a ferupee brought delight to the exporters as goods exported abroad fetche

which in return translated into more rupees.

Imported goods:Buying imported stuff became a very costly affair. Oneshell out extra on imported goods. For instance if you bought a product vUSD 1, you paid around Rs 54 (weeks ago) but you will now have to shelclose to Rs 61 for the same product.


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Effects of Depreciation on Indian Economy

Fuel price:A weak rupee increased the burden of Oil Marketing Companies (OMCs)was passed on to the consumers as the companies are allowed to do so followingderegulation of petrol and partial deregulation of diesel. When the OMCs increasedprices, there was a substantial increase in overall cost of transportation which stokeinflation.

RBIs monetary policy:Depreciation led further increase inflation. In such a situatiohave very less room to cut policy rates. No cut in policy rate added to the borrowerwho were eagerly waiting to get rid of the high loan regime.

Students studying abroad: Students who are studying abroad had to bear the brunowing to depreciating rupee. Expenses incurred towards the university/college fee athat of living shot up, thereby spelling a huge burden on the students.

Tourism: The depreciating rupee was a dampener for people who were planning hoabroad. Travel charges as well as hotel charges was escalate drastically, let alone shoother miscellaneous spending activity


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RBI Intervention in last 6 Months

Forex reserves came to 3 year low at approx. $275 Billion in August 2013

compelling RBI to intervene in the market.

RBI came out with bonds which helped them to bring in close to $10 bill

helping them shore up some of the foreign exchange reserves.

Government in consultation with RBI came up with reforms including rai

Caps in various sectors like Aviation, Pension funds, etc.

Ban on Imports of Gold

Keeping check on speculations in the market


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RBI Intervention in last 6 Months

RBI allowed the three state-owned oil companies to buy dollars directly,

latest in a series of moves to arrest volatility in the domestic currency.

Doing Spot and Forward FX swaps.

the Reserve Bank of India intervened by forcing exporters to bring in the

when the rupee fell to its previous low.


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Future Predictions- Primary Factors

Better Growth: Indias economy is expected to grow at 5.5% in 2014-15 due to exports and increase in investment demand

Lower inflation:The consumer inflation represented by CPI index is forecast at wholesale prices are expected to rise at 6.3% in 2014-15 due to rising administeprices and an elevated inflation expectation.

High interest rates: Keeping the Interest rates the same and not pumping in moliquidity in the market will help the economy to remain stable

Lower current account deficit:The CAD is expected to remain under 3% of GDPFY16, close to sustainable levels, driven by better exports alongside weaker oil aimports.

These factors will help the Rupee to appreciate to levels between 58 and 60 in themonths


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Future Predictions- Other Factors

Stable government will help the Rupee to appreciate in the current fisca

with proper reforms which will attract foreign investors in the long run w

help rupee to appreciate further at Rs. 57-58

There will be some pressure in the initial months after new Govt. is form

may see Rupee falling to Rs. 61-62 per Dollar. But this will be for a very s

period of time.

Also the current steps taken by the Government and RBI to reduce the v

of USD-INR will help the value of Rupee being at the current levels i.e. be

Rs. 60 -61


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Future Predictions- Other Factors

If an Unstable Govt. or a Coalition Govt is formed at the centre then ther

high risk of Rupee depreciating in the coming months and going to level

62-64.

This will be because of the political uncertainty, reforms will not take pla

pace it would like to, and the government might not be investor friendly


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Bibliography

Moneycontrol.com

Economictimes.com

Livemint.com

Reuters.com

Google.co.in


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USD INR Predictions

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