The rupee has hit a series of lifetime lows against the US dollar in 2022 so far, thanks to 20-year highs in the greenback against six other peers and wild swings in crude oil rates. Even as the rupee remains among the more resilient Asian currencies, and many experts are betting on tailwinds such as peaked out inflation across the region, the worst may still not be behind for the Indian currency.

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Here's a list of some of the key factors impacting the rupee:

The dollar index hovering around 20-year peaks

Crude oil approaching $100 a barrel though still 30 percent below a 14-year high touched in Mar 2022

India's forex reserves are at two-year low of $533 billion

RBI remains committed to countering rupee volatility and not targeting a level

Having lost less than seven percent of its value against the US dollar so far this year, the rupee fares better than a slew of other currencies — not just in Asia — such as the euro and the pound.

Morgan Stanley Chief Asia Economist Chetan Ahya expects the pressure on the rupee to continue as long as the Fed pricing doesn't go up further.

"Our forecast is for the (US) policy rates to peak around 3.6-5 percent. We are in sync with markets pricing and we are not expecting further rise in market expectations for policy rates. If that does happen, there will be more pressure for the rupee and, therefore, consequently pressure on the RBI,” he told CNBC-TV18.

His remarks come when the dollar continues to hover near its highest levels against six currencies — the euro, the yen, the pound, the Canadian dollar, the krona and the franc — in 20 years, triggering outflows in emerging markets such as India. Crude oil has come off its lowest levels in nine months on the back of an agreement by the OPEC+ grouping of top producers to reduce output.

Yet, crude oil remains in double digits, in some respite to the Indian forex market. Crude oil benchmark Brent has eased around 30 percent from its highest level of the year.

The relative rise in crude oil is, once again, putting pressure on the rupee as India meets the lion's share of its oil needs through imports.

Many analysts believe that oil rates below $100 a barrel augur well for India in managing its twin deficits: the current account deficit and the trade deficit.

"All in all, there are no serious red flags for India... If you look at high frequency indicators, oil has been below $100/bbl for the past 60 days, inflation is flat for most regions of the world... Somewhere it is also declining. No major sector has seen a price increase over the last 40 days," said Manish Sonthalia, Head of Equities-PMS at Motilal Oswal AMC, told CNBC-TV18.

Ahya of Morgan Stanley believes India should be able to manage a current account deficit of 3 percent of GDP with oil below $100 per barrel.

“The recent trade deficit and current account deficit numbers have been priced to very high levels of oil prices that we have seen immediately after Russia's invasion into Ukraine,” he said.

According to Morgan Stanley, the worst jump in consumer prices may be behind for Asian countries in the current cycle, which may ensure no sharp hikes in interest rates in the region. Simply put, central banks in Asia may not be as hawkish as they have been in the past, in the brokerage's view, in response to unfavourable macro conditions.

Macro indicators are in a much better shape compared to the cycles in 1997 (the Asian crisis) and 2013 (the Southeast Asian haze), said Ahya.

"Asia's macro stability indicators are in a much better shape (this time), and Asian governments and central banks have not really taken up loose fiscal or monetary policy to the same extent as they had done, especially in 2013,” he said.

First Published:Oct 10, 2022 4:04 PM IST