In spite of the Reserve Bank of India utilising its reserves to reduce volatility, the Indian rupee will still be extremely near to its historical low in six months, according to a Reuters poll in which more than a third of economists predicted it would hit a new low in a year.
The anticipation that strong U.S. yields will keep the dollar well-bid caused the Indian rupee to drop to a 10-month low of 83.18 on Wednesday, close to the 83.29/$ record low reached in October 2022, after trading in its smallest range in 20 years this year.
However, the RBI’s frequent interventions, which reduced foreign exchange reserves to below $600 billion, made sure that devaluation was kept to a minimum.
By end-September and end-November, the Indian rupee would increase moderately to 82.88 and 82.75 per dollar, according to the 45 expert polled from September 1–6.
According to projections, it would have increased from Wednesday’s price to 82.50 dollars in six months and from 81.95 dollars in a year by about 1.5%.
The rupee is still being controlled within a very narrow range, despite recent pressure pushing it up against the top of its trading band. It is obvious that without intervention, the Indian rupee would drop, possibly significantly. Robert Carnell, regional head of research at ING, stated that the RBI doesn’t appear to want to allow it to happen.
“This month, headline inflation will rise once more and stay high for a few months before declining back to within its target range. The rupee is typically under pressure to decline as a result, but another factor supporting maintaining the rupee’s strength is the increase in food costs around the world. Rupee softening can wait.
The RBI’s 2% to 6% goal range for inflation in India was anticipated to be exceeded until at least October, but the central bank has turned to market intervention rather than policy action to support the rupee.
In a little more than a month in August, the RBI depleted its foreign reserves by nearly $14 billion.
Forecasts were in a narrow range of 80.00 to 85.33, down from a 78.83 to 85.80 range in a poll conducted a month earlier.
The currency would hit a new record low at some point in the upcoming year, according to more than a third of the 45 economists surveyed.
According to Thamashi De Silva, assistant India economist at Capital Economics, “even if the Indian rupee comes under downward pressure in the near term, we think the central bank is well-placed to ramp up its intervention in the FX market…given that it spent the first half of the year accumulating FX reserves.”
“To be clear, the rupee has surpassed our end-of-year forecast of 83.0/$ and may possibly close the year under our projections. However, as the Fed eases its stance and U.S. Treasury yields decline, we anticipate a recovery in the Indian rupee for the coming year.
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