Indian rupee won't keep up strong start to 2022, reveals senior exec at India's top lender

The Indian rupee is likely to weaken after foreign inflows that have helped it appreciate at the start of the year begin to ebb in coming months, a senior official at the nation's second-largest private sector lender said.

"INR will appreciate short term but have no choice but to depreciate long term," B. Prasanna, group head for global markets sales, trading and research at ICICI Bank Ltd. said in an interview with Bloomberg TV.

"Trade deficit and current account deficit are likely to increase going ahead as there has been substantially high growth in India. Dollar strength is there because of monetary policy divergence, and high oil prices will also favor INR depreciation in the longer term."

Prasanna identified inflows from large Indian companies issuing dollar bonds as well as foreign investors buying Indian equities as factors that were boosting the rupee at the start of the year.

The currency is up 0.7 per cent in 2022, the most among emerging market Asian peers. Reliance Industries Ltd. raised $4 billion in dollar bonds, while global investors have bought $391 million of local stocks so far in January, according to CDSL data.

The Indian central bank is likely to intervene to stem the recent run of the rupee, according to Prasanna. "They would look at the export competitiveness argument and the real effective exchange rate, where INR is still overvalued," he said.