The Indian rupee ended 2022 as one of the worst-performing Asian currencies, down 10.14 percent, its biggest annual drop since 2013, while the dollar soared on aggressive monetary policy from the US Federal Reserve. US to control inflation.
The rupee ended the year at 82.72 against the US currency, up from 74.33 at the end of 2021, while the dollar index headed for its biggest annual gain since 2015.
The only other Asian currency to fall more than the rupee was the Japanese yen, which would end 2022 down more than 12 percent against the dollar.
The rupee also fell victim to a spike in oil prices sparked by the Russia-Ukraine conflict, which pushed India’s current account deficit to a record high in the September quarter in absolute terms.
Looking ahead to 2023, market participants believe the rupee will trade with an appreciation bias, finding relief from declining commodity prices and hoping that foreign investors will continue to buy Indian stocks.
“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 severely affected, which are two key risks for the rupee.” said Raj Deepak Singh, head of derivatives research. at ICICI Values.
Most traders and analysts expect the currency to move between a tight range of 81.50 to 83.50 in the first quarter.
Capital inflows would also be a key metric to watch the rupee for foreign investors, analysts said.
But considering various uncertainties ahead of 2023, such as tight monetary policy conditions, likely recession in some economies and a geopolitical conflict, gauging the direction of equity markets has become difficult, they said.
“There is going to be a period of weakness in global equities… If we have a sell-off in Indian equities, I will be less bullish on the rupee,” said Christopher Wong, currency strategist at OCBC Bank.
Even if the rupee appreciates, it could still underperform its Asian peers and would not be the best pick in the complex of emerging markets, Wong said, expecting the South Korean won and Thai baht to gain more next year.
Updated: January 1, 2023, 5:30 am