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The Indian rupee ended 2022 as the worst-performing Asian currency, with a fall of 11.3%, its most significant annual decline since 2013. The US dollar rocketed on the U.S. Federal Reserve’s assertive monetary policy stance to tame inflation.
The rupee ended the year at 82.72 to the U.S. currency, down from 74.33 at the end of 2021, while the dollar index was headed for its biggest yearly gain since 2015.
The rupee was also a victim of a rally in oil prices flared by the Russia-Ukraine conflict, which caused India’s current account deficit to a record high in the September quarter in absolute terms.
“The Fed could keep rates higher for longer than anticipated, and if the slowdown in developed economies turns into a prolonged recession, India’s exports could be hit severely, which are two key risks for the rupee,” said Raj Deepak Singh, head of derivatives research at ICICI Securities.
Indian rupee ended as the worst-performing Asian currency of the year on Friday, as per Reuters. The currency closed at 82.72 against the US dollar, as compared to 74.33 at the end of 2021. The currency has declined 11.3% this year, its biggest annual fall since 2013. pic.twitter.com/4FOS4ziYtc
— Syed Faiz Abbas (@Faizabdii) December 30, 2022
Most traders and analysts expect the currency to move between a tight 81.50-83.50 range in the first quarter.
Analysts said that equity inflows would be a key metric to watch for the rupee for foreign investors as well.
But considering several uncertainties heading into 2023, such as tight monetary policy conditions, likely recession in some economies, and an ongoing geopolitical conflict, they added that gauging the direction of share markets had become burdensome.
“There’s going to be a period of softness in global equities… If we get a selloff in Indian shares, I’ll be less optimistic on the rupee,” said Christopher Wong, FX strategist at OCBC Bank.
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