Indian rupee
The dollar index - a benchmark of its strength against key currencies - is firming up by the day. More analysts believe rupee hitting 22 is now more about when than whether. Image Credit: Gulf News Archive

Dubai: The Indian rupee has opened at 21.71 against the dirham on Thursday (July 14) as the almighty dollar continues to march ahead. Already at its record low, the chances are that the rupee’s drop towards 22 could happen faster than previously thought, with some analysts forecasting that it would hit that level next month. It was on May 9 that the rupee breached 21/Dh.

“It’s anybody’s guess as to how far the drop will continue, but 20.80 looks a real possibility either today or tomorrow,” said an FX analyst. “Look at how the euro has been faring – on par with the dollar and at its lowest level since late 2002.

“I think market interventions to stem the rupee’s drop will not happen immediately, at least not before the US Fed’s next meeting to raise interest rates. The Reserve Bank of India will likely wait for the 22 to Dh drop to happen first.”

The dirham-rupee official exchange rate is now at 21.65, according to leading local remittance houses.

The is because signals are emerging from the US Federal Reserve that the next interest rate hike – the Fed is meeting July 26-27 – could be a ‘super-sized’ 1 per cent. These are rate increases seldom used by central banks, whereby they tend to be more gradual with the hikes. But the latest US inflation data – at a burdensome 9.1 per cent – might force the Fed to raise by 1 per cent rather than the earlier forecast of 0.75 per cent.

Either way, the dollar is set to ride higher, and that’s going to reflect on the rupee and all other currencies. "We had expected rupee to test 79.84 against USD a few days ago - and today it has," said an official with LuLu Financial. "The geopolitical tensions and inflation figures are not only a worry but scary too.

"Major currencies such as the euro are also sliding and have tested around 20-year lows. We are sure rupee is going to breach the 80 mark against USD and might test 80.40, which translates to 21.88-21.90 against Dh. As of today, it has tested 21.73..."

The current rupee fluctuations are more due to the expected interest rate hikes by the Federal Reserve on July 26-27

- Antony Jos, Executive Director at Joyalukkas Exchange