(Reuters) - The Indian rupee is likely to have seen the worst in 2022 and could start making a recovery in the new year, giving the Reserve Bank of India a chance to replenish its foreign exchange reserves kitty, a treasurer at HDFC Bank told Reuters.
"The growth differential and future prospects of better returns will give the impetus for continued investment into India. Hence, I am not expecting too much rupee depreciation," said Bhaskar Panda, HDFC Bank's executive vice president of overseas treasury.
The rupee was at 82.85 per U.S. dollar on Tuesday, having dropped 11.5% so far in 2022, on course to log its worst yearly decline since 2013.
Panda said the rupee could bottom around 83 and then rise.
India's forex reserves dropped to a two-year low in October but have started edging up and stood at $563.5 billion as of Dec. 16. However, they are still down sharply from a peak of over $642 billion touched in September last year.
The RBI's intervention via dollar sales in the spot and forwards market to curb volatility and prevent sharp slides in the rupee has been the main cause for the depleted reserves, although valuation changes also played a significant role.
"Indian forex reserves have come down probably due to some sales by the central bank. But the same can be replenished in case dollar supplies improve in 2023," Panda said.
Most corporates have hedged their exposures and unhedged positions have come down drastically, he said.
"Hence, volatility and panic-driven dollar demand may be avoided next year."
RUPEE PROSPECTS SEEN IMPROVING
The rupee touched a record low of 83.29 against the dollar in October and has been hovering below the psychological 83 mark in recent weeks.
The impact of Russia's invasion of Ukraine on global crude prices pushed up India's import bill and weighed on the rupee, while aggressive monetary policy tightening by global central banks made matters worse.
The RBI has raised interest rates by a total of 225 basis points over five meetings since May this year to tame inflation.
Panda said India's fundamentals are still "much better" than most other countries, which would be positive for the rupee, and he also expects the pressure on the currency to ease as oil prices stabilise and the dollar index remains subdued in 2023.
Personally, he expects the rupee to trade in the 81-84 range, with an appreciating bias, next year.
The rupee's one-year forward premiums, which hit a decade-low earlier this month, may not rise much and "will most likely be in a range" amid the narrowing interest rate differential between India and the U.S., Panda said.
