Bouncing back: A man holds rupees as he gets out of a bank in Mumbai. The Indian currency is expected to rebound next year as US Treasury yields retreat. — Reuters
BENGALURU: India’s rupee will still be very close to its historic low in six months despite the Reserve Bank of India (RBI) using its coffers to cut volatility, according to a Reuters poll in which over a third of analysts forecast it to reach a new low in a year.
Having traded in its narrowest range in two decades this year, the rupee fell to a 10-month low of 83.18 on Wednesday, close to the 83.29 to the dollar record low hit in October 2022, due to expectations that resilient US yields will keep the dollar well-bid.
However, the RBI’s regular interventions, which have brought foreign currency reserves below US$600bil, ensured limited depreciation.
Median forecasts in the Sept 1-6 poll of 45 analysts showed the rupee would gain modestly to 82.88 a dollar and 82.75 a dollar by end-September and end-November, respectively.
It was forecast to have gained less than 1% from Wednesday’s level to 82.50 a dollar in six months and around 1.5% to 81.95 a dollar in a year.
“The rupee is still being managed within a very tight range though recently, it has been pushed up against the top of its trading band and it looks clear that with absent intervention it would weaken, perhaps substantially.
“The RBI doesn’t seem to want to let that happen,” said Robert Carnell, regional head of research at ING.
“Headline inflation will surge again this month and remain high for a few months before it retreats back within its target range. That usually puts pressure on the rupee to weaken, but rising global food prices are another reason for wanting to keep the currency strong. A softer rupee can wait.”
Inflation in India was expected to remain above the RBI’s 2% to 6% target range at least until October, but the central bank has resorted to market intervention rather than policy action to bolster the currency.
The RBI burned through about US$14bil of foreign reserves in just over a month in August.
Forecasts were in a tight range between 80.00 to the dollar and 85.33 to the dollar over the coming 12 months, narrower than a 78.83 and 85.80 to the dollar range in a poll taken a month ago.
Over a third of the 45 economists polled predicted the currency would touch a new record low sometime over the coming year.
“Even if the rupee comes under downward pressure in the near term, we think the central bank is well-placed to ramp up its intervention in the foreign exchange (forex) market, given it spent the first half of the year accumulating forex reserves,” said Thamashi De Silva, assistant India economist at Capital Economics.
“To be clear, the rupee has gone through our end-year forecast of 83 to the dollar and it may now end the year below our expectations.
“But we expect the rupee to rebound next year as US Treasury yields retreat.” —Reuters
