By Anant Chandak and Vivek Mishra
The Indian rupee’s outlook remains steady as the Reserve Bank of India’s interventions maintain the currency within a narrow range, despite being considered expensive compared to other currencies, according to a recent Reuters poll of foreign exchange analysts.
A recent sharp decline in global equities, triggered by the sudden liquidation of carry trades, led to the rupee hitting an all-time low of 83.96 per dollar. However, the RBI’s intervention in the foreign exchange market limited the currency’s decline to just 0.25%.
Analysts surveyed from August 1 to 6 have made minimal changes to their forecasts compared to the previous month. Median projections indicate that the rupee is expected to trade at 83.55/$ and 83.40/$ by the end of October and January, respectively, with a slight gain to 83.00/$ in the next year.
Despite the stability, Fiona Lim, a senior FX strategist at Maybank, finds predicting the rupee/dollar pair challenging due to the RBI’s efforts to reduce volatility. Lim highlights potential risks to the outlook, such as increased U.S. Treasury scrutiny or adverse economic conditions in India.
The RBI’s monthly bulletin in June revealed that the rupee’s trade-weighted real effective exchange rate (REER) was 106.54, indicating an overvaluation of more than 6%. This has made the rupee the most expensive relative to its peers since December 2017.
Dhiraj Nim, an FX strategist at ANZ, emphasizes the need for a slightly cheaper currency to boost manufacturing and exports. However, with the rupee already in an overvaluation zone, policy interventions aim to prevent further appreciation.
Overall, the RBI’s continued efforts to stabilize the rupee and maintain adequate reserves suggest that the currency is likely to remain in a tight range in the near future.
(For more stories from the August Reuters foreign exchange poll, click here)
Analysis:
The Indian rupee’s outlook remains stable, thanks to the Reserve Bank of India’s interventions. Despite being perceived as overvalued, the currency’s tight range is expected to persist. However, potential risks such as increased scrutiny or economic challenges could impact the rupee’s trajectory. Overall, the focus on maintaining reserves and preventing further overvaluation indicates a cautious approach by the RBI to stabilize the currency.