The rupee may have slipped past the psychological barrier of 90 against the US dollar, but this slide is not a sign of weakness, a new SBI Research report said on Thursday.
The data compiled by the SBI Research said that the recent depreciation is driven largely by global uncertainty, delays in the US-India trade deal, and foreign portfolio outflows -- rather than any deterioration in India's economic fundamentals.
According to the report, the recent fall in the rupee has been mainly driven by three factors -- uncertainty around the India-US trade deal, foreign portfolio outflows from equities after two strong years of inflows, and the Reserve Bank of India's clear stance of avoiding excessive intervention in the currency market.
At the same time, the offshore non-deliverable forward (NDF) market has gained momentum, while the US dollar index is showing signs of strengthening.
The report showed that concerns about a widening trade deficit pushing the rupee down are not fully accurate.
Between April and October, India's goods and services deficit stood at $78 billion, only slightly higher than $70 billion in the same period last year.
Experts believe that negative sentiment around trade numbers has been oversold in the markets.
Since April 2, when the US announced steep tariff hikes on multiple countries, the Indian rupee has depreciated around 5.5 per cent against the dollar -- more than most major global currencies.
The 50 per cent tariff imposed on India is much higher than the tariff levels imposed on China, Vietnam, Indonesia, and Japan.
This, the report said, is one of the biggest reasons behind the current pressure on the rupee, even though India has been trying to diversify its exports and push new free-trade agreements.
Nearly $45 billion worth of Indian exports -- mostly labour-intensive products -- are expected to be directly impacted by the US tariffs, the report added.
