India's rupee seen firming to 78.50-79.50 by fiscal year-end - HDFC Bank

India's rupee seen firming to 78.50-79.50 by fiscal year-end - HDFC Bank

By Anushka Trivedi

MUMBAI, Aug 23 (Reuters) - The Indian rupee is likely to strengthen to 78.50-79.50 against the dollar by March 2023, as commodity prices stabilise globally and improving domestic fundamentals lure back foreign portfolio inflows, the country's top private lender HDFC Bank said.

The rupee has INR=IN has weakened 7.5% so far in the 2022 calendar year, trading close to a record low of 80.0650 hit last month, as aggressive rate hikes by the Federal Reserve sent the dollar rallying and commodity prices soared after Russia invaded Ukraine.

"We don't think this drop in the rupee is going to be sustainable. By (this fiscal) year-end, we actually expect some stabilisation and we are looking at a 78.50 to 79.50 range," said Sakshi Gupta, principal economist at HDFC Bank.

Cooling commodity prices and robust liquidity across the globe, along with strong fundamentals of some emerging markets compared to developed economies, should bring foreign investors back to India towards the end of the fiscal year after near-term volatility eases, she said.

Gupta said that even at current oil price levels, India's current account and the rupee would be net beneficiaries. Brent crude LCOc1 has plunged 30% since hitting a high in early March, while coal and gold prices have also come down considerably.

India's improving economic fundamentals could lure foreign investors back into shares and debt, she said, adding that inflation had likely peaked and demand would remain robust.

Potential foreign direct investment flows, remittances and the Reserve Bank of India's (RBI) foreign exchange reserves are also expected to support the rupee later this year.

On risks from the current Fed rate-hike cycle, Gupta said she believed they were likely to moderate gradually.

"In extreme risk-off, you could see the rupee breach 80, but even so I don't think we would be in a scenario – given the RBI's intervention – where you would see a sustained fall," she said.
Reporting by Anushka Trivedi & Nimesh Vora; Editing by Subhranshu Sahu