The Indian rupee fell to a new low versus the US dollar on Tuesday, as fears of a bigger current account deficit arose after the country’s trade deficit reaching an all-time high in June.

The June trade imbalance in India increased to a record high of $25.63 billion, from $9.61 billion a year earlier, according to data released late Monday.

Analysts and economists predict that the country’s current account deficit would rise to about 3.2 percent of GDP in fiscal year 2023, up from 1.2 percent in fiscal year 2022.

After touching a life low of 79.3750, the partly convertible rupee concluded trading at 79.37/38 per dollar. It had fallen to a record low of 79.12 last week before closing at 78.95 on Monday.

“We expect India’s widening current account deficit to remain an ongoing drag for INR, with limited offsets from India’s FDI and overseas investment inflows, exacerbated by ongoing FPI outflows,” Nomura economist Sonal Varma said.

“Therefore, we expect USD/INR to reach 82 by Q3 2022 and 81 by Q4 2022. One risk to our view is the RBI’s USD selling intervention, which could slow the pace of INR depreciation.”

The local stock market went negative at the conclusion of trading, closing down 0.2 percent, adding to the rupee’s pressure.

Foreign portfolio withdrawals from stocks reached $6.6 billion in June, the biggest level since March 2020, bringing total outflows in 2022 to more than $30 billion.

Traders claimed the central bank sold dollars intermittently, preventing the rupee from falling further, but predictions of aggressive rate rises by the US Federal Reserve and the resulting larger interest rate disparity are anticipated to keep the currency weak.

In a recent note, Goldman Sachs said that due to revisions in the brokerage’s balance of payments projection, they have updated their USD/INR predictions for the next three, six, and twelve months to 80, 81, and 81, respectively, from 79, 79, and 78 before.

Source: Reuters

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