As the dollar declines, the Indian rupee may end 2022 higher than it started-Analysts

According to a few analysts who have reassessed their predictions based on the falling dollar and improving outlook on Asian currencies in the wake of the U.S. inflation statistics, the Indian rupee may end the year higher than originally predicted.

The rupee rose to a seven-week high against the dollar on Monday thanks to lower-than-expected U.S. inflation figures. From the record low of 83.29 it reached around mid-last month , that represents a rebound of more than 3%.

Spot USD/INR was trading at 81.36 as of this writing, while the forward rates for December and March are roughly 81.60 and 82.04.

Bank of America has revised its projection for the rupee from levels of 84 and 85 to approximately 81 per dollar by December and 83 by March.

As they updated higher expectations for other Asian currencies, including the yuan, BofA analysts noted that major repricing of Asian FX was caused by an accumulation of better-than-expected news on U.S. inflation and China's re-opening.

According to a note from BofA, Asia will benefit from "greater policy flexibility and softer financial conditions" when Fed rates peak next year and China finds stability. It was claimed that this would enable portfolio investments in Indian assets.

By the end of December, the rupee will trade between 80.50 and 82 versus the dollar, down from 81.50 to 83 earlier, according to Sakshi Gupta, principal economist at HDFC Bank.

"Our levels for the rupee have changed as a result of a shift in the amount of the dollar's reverse and the type of inflows we are seeing into Indian stocks," she continued.

Last week, the dollar index fell to its lowest point in in three months. According to NSDL data, foreign capital has invested more than $3 billion in Indian shares so far this month.

Aditi Gupta, an economist at Bank of Baroda, made a similar case for her decision to lower her March rupee target from 85 to 83.

However, other economists do not think that the rupee's darkest days may be behind it.

According to IDFC First Bank economist Gaura Sen Gupta, the rupee is anticipated to tumble to 85 to the dollar by March.

The U.S. inflation reading from last week would probably "make the Fed fight the market" and keep it hawkish, she said, adding that the dollar's surge is still going strong.

Two Fed officials who spoke in response to the U.S. inflation report called for smaller rate increases but noted that more has to be done to reduce inflation.

Bank Dec-22 Old view Mar-23 Old view

(per USD) (per USD) (per USD) (per USD)

BofA 81 84 83 85

HDFC 80.50-82 81.50-83 80.50-82 81.50-82.50

Bank of Baroda 81.5 83 83 85

IDFC First -- -- 85 85