Despite the bid recovery of rupee for the first time since 37 months, Deutsche Bank, a German banking company said that rupee might face drop down, touching 72.25 by the end of December 2017.
It is observed that the rupee value steered from 68.86 on Thursday to 68.46 on Friday.
The prominent German bank further stated that the healthy Federal reserve of the United States in 2017 could strengthen the dollar ultimately resulting in a further decline in the emerging currencies.
After switching to 68.47 on Friday, beating the record low 68.86 on Thursday, the statement from the bank read “We think the case for further rupee depreciation remains in place, despite a constructive balance of payment position. It seems to us that the rupee would also likely breach 70 next year and head towards 72.5 by the end of December 2017, which will erase some of the appreciation of the real effective exchange rate (REER) and help maintain India’s export competitiveness against other emerging market peers.”
Reserve Bank of India (RBI) might put its efforts to maintain the stability of (INR to USD conversion) rupee in the market, but the prolific growth of US economy is more influential and will show the huge impact on the various peer currencies in the world market. “Allowing the rupee to depreciate in line with other emerging market currencies will not only help maintain export competitiveness but also lead to a further easing of monetary conditions, which may be seen as necessary to offset risks to growth,” Deutsche Bank said in a note to its clients.
The reason for this immediate hike in the federal reserve is the multiplied value of the 10-year US bond post the US presidential election results. However, Donald Trump’s win in the presidential election has shown a suitable impact as he is exclusively concentrating on the huge investments on US Infrastructure which might result in inflation and raise in tax rates.
Contrary to the US bond yields, a terrific decline is observed in Indian bonds as a result of demonetization. Forex reports stated that demonetization played a vital role in dropping down the small investors, who used to borrow money from the US at low-interest rates then invest their wealth in India.
Post the US presidential elections, the Foreign Portfolio Investors (FPI) took a step backward in India pulling out Rs 18,600 crore from the Indian debt market, meanwhile, disburdening the equities worth Rs 17,262.32 crore.