Indian rupee set to plunge to 72; will hit students, travellers, importers hard

The rupee fell another 37 paise to end at a fresh lifetime low of Rs 71.58 against a strengthening dollar on the back of domestic factors and the probability of escalation of Sino-US trade war.
The continued depreciation of the rupee will impact students seeking education loans and people who undertake foreign travel. Students will have to take larger loans to meet their expenses, say bankers.

A senior SBI official said, “Our upper limit for education loans is up to Rs 1.5 crore, so students have enough room even with the rupee going up. In many cases, the sanctioned limits are not utilised. Now larger portion of the loan may be utilised as the expenses in dollar terms go up when the loans are taken in rupee. The ticket size of our loans is about Rs 40 lakh to 50 lakh, but this size may go up.”

Even companies will be impacted by higher costs as dollar strengthens.

“Higher shipping tariffs levied in US dollars are also forcing Indian importers to pay more rupees for every increase in the value of the dollar, reducing the profitability of international business ventures.  Sectors like information technology and textiles can reap accrued benefits in terms of increased revenues,” said Mahesh Singhi, founder and managing director, Singhi Advisors.

According to forex experts, Securities and Exchange Board of India (Sebi) circular on non-resident Indians, persons of Indian origin (PIOs) and overseas vehicles set up by Indian financial services groups not allowed to be ‘beneficial owners’ of foreign portfolio investors (FPIs) will hurt the sentiments.  

The government has allowed for a transition period  up to March 2019. The weak sentiment also led the rupee to open lower at Rs 71.24 from the previous day’s close of Rs 71.21 at the  inter-bank foreign exchange (forex) market.

Anindya Banerjee, currency analyst with Kotak Securities, said, “The Sebi circular and the withdrawal of the Mauritius treaty is putting pressure on the rupee as the sentiments are impacted. The rising price of Brent which has now touched $79 a barrel which will also put pressure on the rupee.”

India and Mauritius had amended their 33-year-old tax treaty in 2017, bring to an end the investment routed through the island country to stop round-tripping of funds to avoid tax.

Pritam Patnaik, head, commodity, Reliance Securities, said the Mauritius tax treaty has not contributed to the current rupee depreciation. The factors affecting the Indian rupee are more due to global factors and rising dollar demand. The weakness in the currency does not imply higher hedging cost for corporates as forward premium are quoting at the same rates which is 4.19% per annum.”

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SBI Ecowrap in a report said, “Against the backdrop of rising oil prices and lukewarm export growth,  the current account deficit is expected to reach 2.8% of GDP ($75 billion) in FY19, with merchandise trade imbalance likely to increase to $188 billion as against $160 billion in FY18. Thus the huge increase in the trade deficit is more linked to the average export performance in FY19 so far. Government data shows that the volume of oil imports by India has increased 5.6% in the first three months of this fiscal, oil price (Indian basket) has increased 46% during the same period.”

Source: DNA Money