Miluni Purohit
BANGALORE (Reuters) – The Indian rupee will remain in a narrow range and strengthen only marginally against the U.S. dollar next year as the Reserve Bank of India continues to intervene in currency markets despite a strong economy, according to a Reuters poll.
Year to date, the rupee has risen just 0.2% against the US dollar as weakening calls from the US Federal Reserve for an early rate cut have supported the greenback.
The Indian currency is expected to strengthen slightly from 83.05 to the dollar on Tuesday to 83.00 in a month and 82.84 in three months, a Reuters poll of 42 currency analysts showed on Feb. 2-6.
While the rupee has outperformed all major Asian currencies this year, some such as the Thai baht and Korean won are eventually expected to rise further by the end of January 2025.
“Looking at the short term, the rupee should continue to trade in a tight range. I see a slight upward bias,” said Dheeraj Neem, currency strategist at ANZ.
“The rupee may depreciate marginally, but in the long term… a supportive balance of payments and possible weaker dollar will pave the way for moderate appreciation.”
Fed policymakers have strongly opposed bets on early interest rate cuts, delaying a long-awaited turn in the dollar’s dominance over other currencies.[EUR/POLL]
The RBI is expected to cut rates later this year, but at a much slower pace than the Fed, so the rupee’s relative strength may continue.
Expectations that growth in Asia’s third-largest economy will remain the fastest among major economies could also provide further support.
However, any growth is likely to be limited as the RBI is expected to continue drawing on foreign exchange reserves, currently around $616.7 billion, to hedge against volatility.
The rupee was expected to rise more than 0.6% to 82.50 against the dollar in six months and 0.8% to 82.40 in a year. Forecasts ranged from 79.00 to 84.50 over a 12-month horizon.
India has attracted a significant influx of foreign investors into its bond markets in recent months, boosted by JPMorgan’s decision to add debt to its indexes.
“The inclusion of JPMorgan in the GBI-EM index this year and the lack of optimism on China suggest that portfolio investment flows into India should continue,” said Aditya Sharma, emerging markets strategist at Natwest Markets, referring to the government bond index for emerging markets.
“Additionally, RBI’s foreign exchange interventions are aimed at dampening volatility from broader dollar movements.”
(As for other stories from the February Reuters currency survey:)