By Anant Chandak
BENGALURU (Reuters) – The Indian rupee is set to trade in its narrowest range in almost three decades in the coming year, according to a Reuters poll, as the Reserve Bank of India (RBI) continues to keep a tight check on the currency’s fluctuations.
While most emerging market currencies have performed poorly against the dollar over the past two years, the rupee has remained surprisingly stable thanks to the RBI’s nearly $650 billion in foreign exchange reserves, which it regularly deploys to curb volatility.
The currency’s implied volatility, which is at its lowest level in almost two decades, is expected to persist at least through the end of the year, according to a Reuters poll of 40 currency strategists conducted July 1-3.
The median forecast was for the rupee to be worth 83.41 per dollar by the end of September and for the currency to reach 83.20 by the end of 2024, close to the level it was trading at on Wednesday.
The rupee was forecast to rise 0.6% to 83.00 per dollar in the year.
“The rupee continues to be strongly impacted by the RBI’s consistent focus on containing volatility, limiting the impact of portfolio flows or changes in the fundamental outlook,” said Abhay Gupta, Emerging Asia fixed income and forex strategist at BofA Securities.
“Despite the short-term benefits, too much of a good thing can have its side effects. The RBI may have overdone it in containing volatility, taking it to levels well below the rupee’s historical ranges and comparable to its peer.”
The analysis showed that the standard deviation of the six-month outlook was the lowest in at least two years, suggesting that the RBI will allow the rupee to trade only in a narrow range.
Still, a handful of currency strategists expected the currency to hit an all-time low by this time next year.
“With the Fed being a late entrant in the global monetary easing cycle, the dollar is likely to remain supported. Against this backdrop, we expect the rupee to see a modest weakening in 2024-25,” said Vivek Kumar, economist at QuantEco Research.
Federal Reserve Chairman Jerome Powell said Tuesday that the United States was back on a “disinflationary path” but warned that inflation may not reach its 2% target before the end of next year or even in 2026.
“While the rupee may continue to weaken, the magnitude of the effect will not be alarming,” QuantEco’s Kumar said.
He expected the rupee to weaken to a modern low of 84.50 per dollar by the end of 2024.
(More stories from Reuters’ July currency market survey:)
