Author: Anant Chandak
BENGALURU (Reuters) – The Indian rupee will trade in its narrowest range in nearly three decades over the next year as the Reserve Bank of India (RBI) continues to keep a tight rein on currency movements, a Reuters poll showed.
While most emerging market currencies have underperformed against the dollar over the past two years, the rupee has remained fairly stable as India’s central bank regularly dips into its nearly $650 billion in foreign exchange reserves to tame volatility.
A Reuters survey of 40 currency strategists conducted from July 1 to 3 showed that the currency’s implied volatility, currently hovering at its lowest level in nearly two decades, is expected to remain at least until the end of the year.
The median forecast sees the rupee reaching 83.41 per dollar by the end of September and 83.20 per dollar by the end of 2024, around where it was trading on Wednesday.
The rupee is expected to rise 0.6% against the dollar in a year to 83.00 rupees.
“The RBI continues to dominate the rupee with its unwavering commitment to containing volatility and limiting the impact of changes in portfolio flows or fundamentals,” said Abhay Gupta, emerging Asia fixed income and FX strategist at BofA Securities.
“Despite the short-term benefits, too much of a good thing can have side effects. The RBI may have gone too far in controlling volatility, pushing it to levels well below the rupee’s historical levels and in line with the rupee’s historical levels. quite.
Analysis shows the standard deviation of the six-month outlook forecast is around the lowest in at least two years, suggesting the RBI will only allow the rupee to trade within a narrow range.
Still, some currency strategists expect the currency to hit record lows by this time next year.
Vivek Kumar, economist at QuantEco Research, said: “With the Fed being a late entrant into the global monetary easing cycle, the dollar is likely to remain supported. Against this backdrop, we expect the rupee to weaken slightly in 2024-25.”
Federal Reserve Chairman Jerome Powell said on Tuesday that the United States was back on a “deflationary path,” but warned that inflation may not reach the 2% target until the end of next year or even 2026.
“While the rupee may continue to depreciate, the magnitude will not be worrisome,” QuantEco’s Kumar said.
He expects the rupee to fall to a new low of 84.50 against the dollar by the end of 2024.
(Additional coverage of the July Reuters FX poll:)
