By Anant Chandak
BENGALURU (Reuters) – The Indian rupee will trade within its narrowest range in almost three decades in the coming year as the Reserve Bank of India (RBI) continues its tight grip on the currency’s moves, a Reuters poll shows .
While most emerging market currencies have performed poorly against the dollar over the past two years, the rupee has remained remarkably stable thanks to the RBI’s foreign exchange reserves of nearly $650 billion that it has regularly deployed to curb volatility.
The currency’s implied volatility, hovering at its lowest level in almost two decades, is expected to hold at least until the end of the year, according to the Reuters poll of 40 currency strategists from July 1 to 3.
Average forecasts showed the rupee trading at 83.41 per dollar by end-September and reaching 83.20 by end-2024, around the level it was trading at on Wednesday.
The rupee was forecast to rise 0.6% to 83.00 per dollar in a year.
“The rupee continues to be dominated by the RBI’s single-minded focus on curbing volatility, limiting the impact of portfolio flows or changes in fundamental prospects,” said Abhay Gupta, fixed income and forex strategist for emerging Asia 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 containing volatility by taking it to levels well below historical ranges for the rupee and comparable to a pegged currency.”
Analysis showed that the standard deviation of forecasts for the six-month outlook was around the lowest in at least two years, indicating that the RBI will allow the rupee to trade only within a tight range.
Still, a handful of currency strategists expected the currency to bottom out around this time next year.
“Because the Fed is a latecomer to the global monetary easing cycle, the dollar could likely remain supported. Against this backdrop, we expect the rupee to show modest weakness in 2024-25,” said Vivek Kumar, economist at QuantEco Research.
Federal Reserve Chairman Jerome Powell said on Tuesday that the US is back on a “disinflationary path” but warned that inflation may not reach the 2% target until late next year or even 2026.
“While the rupee could weaken further, the magnitude will not be a concern,” QuantEco’s Kumar said.
He expected the rupee to weaken to a new low of 84.50 per dollar by the end of 2024.
(For other stories from the July Reuters currency poll:)
