The rupee is likely to "moderately depreciate" towards the 69 level in the next 9-12 months on the back of higher crude prices in the second half of next fiscal, a Citigroup report says.
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According to the global financial services major, the other factor that is expected to play a big role is the local currency's persistent inflation differential with trading partners.
"We expect INR-USD to moderately depreciate towards 69 over 9-12 months on the back of higher crude prices in the second half of FY17 and persistent inflation differential with trading partners," Citigroup said in a research report.
The report, however, said a sustained weakness in USD against the emerging market forex remains a key risk to this view. Meanwhile, forex reserves have increased by around USD 14 billion so far this fiscal, in line with surplus balance of payment, but the pace of increase has moderated in January-March (USD 3 billion till early March).
In March, the rupee appreciated 2 per cent against dollar, but still lagged its emerging market peers.
According to experts, the rupee has been under-performing since the beginning of this year, and besides competition among some emerging market currencies, domestic concerns over manufacturing have hit the currency hard. The rupee is currently hovering around 67 per dollar.
The global brokerage firm has adjusted its 2016-17 balance of payment forecast to reflect emerging trends. "We also make marginal adjustments to the capital account projections and expect a strong BoP surplus of USD 29.3 billion in 2016-17 (USD 38.2 billion earlier)," the report added.