The RBI is still widely expected to cut rates later this year, but at a much slower pace than the Fed, allowing the rupee’s relative strength to continue.
The Indian rupee will remain in a tight range in the coming year and appreciate only slightly against the US dollar as the Reserve Bank of India continues to intervene in currency markets despite a strong economy, a Reuters poll shows.
The rupee has risen just 0.2% against the dollar since the start of the year as waning calls for an early rate cut by the US Federal Reserve kept the dollar afloat.
The Indian currency is expected to rise slightly from Tuesday’s rate of 83.05 to the dollar, to 83.00 in a month and 82.84 in three months, the Reuters survey of 42 currency analysts from 2 showed. until February 6.
While the rupee has outperformed all its major Asian peers so far this year, several rupees such as the Chinese yuan, the Thai baht and the Korean won are expected to appreciate more by the end of January 2025.
“Looking at the short-term prospects, the rupee should continue to trade in a tight range. I see a slight uptrend in USD/INR from here,” said Dhiraj Nim, forex strategist at ANZ.
“The rupee could depreciate slightly, but in the longer term, a supportive balance of payments and eventual weakening of the dollar would pave the way for modest appreciation.”
Fed policymakers have strongly resisted an early rate cut, delaying a long-awaited reversal of the dollar’s dominance against other currencies.(EUR/POLL)
The RBI is still widely expected to cut rates later this year, but at a much slower pace than the Fed, allowing the rupee’s relative strength to continue.
Expectations that growth in Asia’s third-largest economy would remain the fastest among major economies could also provide further background support.
Still, any gains are likely to be limited as the RBI is expected to continue using foreign exchange reserves, currently around $616.7 billion, to protect against volatility.
The rupee was expected to rise over 0.6% to 82.50 against the dollar in six months and 0.8% to 82.40 in a year. Forecasts ranged between 79.00 and 84.50 for the twelve-month horizon.
India has attracted significant inflows of foreign investors into its bond markets in recent months, helped by JPMorgan’s decision to add debt to its indices.
“Inclusion in JPMorgan’s GBI-EM index this year and the lack of optimism on China suggest that portfolio flows into India should continue,” said Aditya Sharma, emerging markets strategist at Natwest Markets, referring to the government bond index for emerging markets.
“Additionally, the RBI’s currency interventions are aimed at suppressing the volatility of broader USD movements.”
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)
First print: February 7, 2024 | 8:58 am IST