Miluni Purohit
BANGALORE (Reuters) – The Indian rupee will strengthen only marginally against the U.S. dollar over the next three months as the Reserve Bank of India (RBI) uses its foreign exchange reserves to manage volatility and keep the currency relatively strong, a Reuters poll showed.
While most emerging market currencies have weakened against the dollar this year, the rupee traded in a tight range of 82.64/$-83.45/$ and was down less than 0.5%.
This stability was largely due to the RBI’s continued intervention in the foreign exchange markets. Its foreign exchange reserves recently hit a record high of $642.63 billion.
“The RBI’s bilateral foreign exchange intervention aimed at maintaining the rupee’s stability has limited volatility versus the US dollar and Asia. The RBI has been building up its foreign exchange reserves whenever possible, which are now at a record high,” said Dheeraj Neem, currency analyst. ANZ strategist.
“He believes that they, not the exchange rate, are his first line of defense against external shocks. We expect this trend to continue with the rupee rising modestly in 2024.”
The rupee was expected to rise slightly to 83.11/$ for one month and 82.90/$ for three months from 83.43/$ on Wednesday, a Reuters poll conducted March 28-April 3 of 46 currency analysts showed.
This forecast has remained virtually unchanged for several months and has not been affected by the relative strength of the dollar this year.
The RBI is expected to keep the repo rate unchanged this week before cutting it in the third quarter. Many predict that the US Federal Reserve will begin reducing US borrowing costs in June.
But the risk is growing that the Fed could not only cut rates later, but also cut them fewer times than currently expected.
“The key risk to the INR (Indian rupee) trajectory will be a further pullback in the Fed’s rate-cut cycle after June,” said Aditi Gupta, economist at Bank of Baroda.
“Growth (in the US) is lagging, which could lead the Fed to delay its rate cut cycle, which would argue for a stronger dollar in the near term.”
However, the rupee was forecast to rise nearly 1.1% to 82.50/$ in six months and about 1.7% to 82.00/$ in a year.
(As for other stories from the April Reuters currency survey:)