The Indian rupee has been the second worst performing currency among its Asian peers this year, declining 10 percent so far, only trailing the Japanese Yen, which has depreciated 15 percent.

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In October, the currency hit an all-time low, crossing the level of 83 against the US Dollar. While the rupee has cooled off since then, the pressure is unlikely to ease anytime soon.

Even as the Union Finance Minister Nirmala Sitharaman reasserted that the Indian currency has been strong amongst its other major peers, while answering a question in the Lok Sabha on Monday, several experts and analysts believe that there are a couple of very strong factors behind the continued pressure on rupee.

First, of course, is the US Federal Reserve that continues to hike interest rates. Consensus on the street later tonight is that the Jerome Powell-led FOMC will hike interest rates by another 50 basis points, slower than the four previous hikes of 75 basis points but a hike nonetheless.

The street is anticipating hikes worth another 100-125 basis points from the Federal Reserve before it hits pause.

JPMorgan believes that the Fed will stop the current cycle of hiking rates after taking the terminal rate to 5-5.25 percent. The terminal rate is the peak till which the Federal Reserve will raise interest rates before trimming them lower again.

The Fed continuing to hike interest rates will not be good news for Emerging Market currencies like the Rupee. Manishi Raychaudhuri of BNP Paribas expects another period of turmoil for Asian currencies and expects the Fed to raise rates by another 125 basis points. As a result, he has downgraded India to neutral from overweight in BNP Paribas' portfolio.

Additionally, foreign investors are a little skeptical to return to Indian markets despite its recent outperformance. Reason? Elevated valuations.

Timothy Moe of Goldman Sachs believes that valuations of the Chinese and Korean market, which are at half of India's current multiple appear more attractive to foreign investors.

The idea was corroborated by Gautam Trivedi of Napean Capital who said that money moves from high valuations to low valuations and also by Mahesh Patil of Aditya Birla Sun Life AMC, who said that there have been outflows from foreign investors recently who chose to book profits after the markets' stellar run.

Geojit Financial Services expects the rupee to remain in a range of 82.48-82.76 and a break beyond either side will determine a direction for the currency.

(Edited by : CH Unnikrishnan)

First Published:Dec 14, 2022 12:34 PM IST