STOCK India rupees
Indian rupee set to weaken beyond 80 against US dollar Image Credit: Ahmed Ramzan/Gulf News

India's rupee may extend declines to a record-low 81 per dollar by year-end due to rising prices of crude and other raw materials, according to US-based top lender Bank of America.

Against the UAE dirham, such a trend could imply that the Indian currency will drop to 22 and beyond by 2022-end. Weakness in the rupee's value against the US dollar will be automatically reflected in its exchange rate with the UAE dirham as the UAE currency is pegged to the dollar.

The value of the Indian rupee versus the UAE dirham was at 21.20 on Thursday, and at 78.37 against the US dollar. Check the latest forex rates here.

The currency has already slumped more than 5 per cent this year as Russia-Ukraine conflict sent Brent crude surging to almost $140 a barrel in March.

The rally in energy prices has worsened India's external finances as the nation relies on imports to meet about 80 per cent of its oil requirements.

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The rupee has also been pummeled by outflows of about $27 billion from Indian stocks this year, and by strength in the dollar-driven by US interest-rate hikes.

The rupee "has continued to depreciate beyond our expectation of a gradual trend weakness," Abhay Gupta, a strategist at BofA Securities in Mumbai, wrote in a note to clients. "The fundamental outlook has deteriorated further primarily due to higher oil and other commodities."

Gupta's new year-end prediction of 81 per dollar is more bearish than all 23 forecasts in a Bloomberg survey.

The rupee has set a series of new all-time lows against the dollar in recent weeks, with its latest being 78.2888 on Wednesday.

Still, the Reserve Bank of India's reserve buffers and monetary policy tightening may help contain the prospect of an even larger depreciation, Gupta said.