(Reuters) - The Indian rupee will remain at its current level three months from now and gain only marginally by the end of February 2024, barely recouping any of its losses from last year, a Reuters poll of foreign exchange strategists found.
The rupee has steadied after falling more than 10% in 2022, when it was one of the worst performing Asian currencies. It is expected to trade at 82.54 per dollar at the end of May, according to the median forecast in a Feb. 28-March 2 Reuters survey of 34 respondents.
In the near-term, much will depend on interest rate differentials, mainly driven by the U.S. dollar. The Reserve Bank of India (RBI) is nearing the end of its tightening campaign with one last 25 basis point hike expected in April to take its main interest rate to 6.75%.
The U.S. Federal Reserve, however, is expected to continue raising rates at least into the middle of the year to tame sticky inflation.
"The dollar is strengthening once again, and if the Fed continues hiking it will definitely be beneficial for the dollar and there will be pressure on the rupee," said Aditi Gupta, an economist at Bank of Baroda.
"We are also expecting some slowdown in (India's) goods exports because of growth slowing in the West," she added.
Although India's merchandise trade deficit narrowed in January, this was because both imports and exports shrank.
The cumulative trade deficit during April-January remained higher than its year-ago level, which may further weaken the rupee. Foreign portfolio investment outflows rose to a 7-month high in January as China reopened.
More than one-third of poll respondents, 12 of 34, said the rupee will slide to 83.00 per dollar or weaker by the end of May, with seven respondents predicting a new lifetime low.
Only seven respondents answered an additional question on the weakest rate the rupee will fall to over the next three months, with just three predicting 84.00 or lower.
The currency could edge back to 81.50 a year from now, a gain of just over 1%, the poll showed, far from recovering an almost 9% drop since the end of February last year when it stood at 75.34.
The RBI likely intervened to shore up the rupee after it hit an historic low of 83.26 in October last year, with foreign exchange reserves dropping to a more than 2-year low of $524.52 billion.
Market participants believe the central bank has continued intervening in the past month and will continue to do so, with reserves hitting an 11-week low of $561.27 billion in mid-February.
"Currently, the RBI is protecting the 83 level, but it would be very difficult going ahead," said Tarun Sangtani at Vadilal Forex, one of the most accurate forecasters on Asian currencies last year according to StarMine SmartEstimate calculations.
"At a certain point of time they will be out of the market and then the rupee will depreciate once again."