Anika Begay
By Anant Chandak and Vivek Mishra
BENGALURU (Reuters) – The outlook for the Indian rupee remained broadly unchanged from last month as interventions by the Reserve Bank of India kept the currency, seen as expensive relative to peers, range-bound, according to a Reuters poll of foreign exchange analysts.
A sharp decline in global stocks, driven by the sudden unwinding of carry trades – where investors borrow cheap currencies to invest in higher-yielding assets elsewhere – pushed the rupee to a record low of 83.96 per dollar on Tuesday.
The likely intervention of the RBI in the foreign exchange market limited the currency’s fall to 0.25%.
This trend was unlikely to change any time soon, as analysts in a survey conducted between August 1 and 6 changed their forecasts little from their July survey.
The median forecast showed the rupee to trade at 83.55/$ and 83.40/$ by the end of October and end of January, respectively, from around 83.95/$ on Tuesday. It was expected to gain about 1% to 83.00/$ in a year.
Fiona Lim, senior FX strategist at Maybank, said the rupee/dollar pair was quite difficult to predict. “This is likely partly due to the RBI’s propensity to lean into the wind to reduce volatility.”
“The main risk that threatens our forecast (is) … if there is too much control, perhaps by the US Treasury on the rupee (being) kept artificially weak. While this is not likely, a combination of higher inflation for a longer period and poorer (economic) growth outcomes for India could also threaten our outlook,” Lim said.
According to the RBI monthly bulletin, the real effective exchange rate (REER) of the rupee stood at 106.54 in June, suggesting that the currency is overvalued by more than 6%.
The partially convertible currency is the most expensive compared to other currencies traded since December 2017.
“The domestic policy focus is on increasing output and exports, and for that we may need a slightly cheaper currency, but current account deficit trends have supported a less undervalued currency,” said Dhiraj Nim, currency strategist at ANZ.
“It is now in an overvalued zone, so the effect of the policy intervention is to prevent further overvaluation of the currency. As long as the RBI is willing to accumulate those reserves and use them occasionally to dampen volatility, this process could well continue.”
(For more stories from the Reuters August exchange rate poll click here)
