Reuters poll finds analysts believe RBI intervention will keep the Indian rupee in a narrow range

According to a Reuters poll, the Indian rupee will trade in a constrained range over the next three months before strengthening modestly in a year as the Reserve Bank of India utilizes its considerable foreign exchange reserves to maintain currency stability.

As the Indian central bank continued to purchase dollars, increasing its FX reserves of over $600 billion, expected volatility in the rupee over the next three months was at its lowest level in twenty years.

Despite India continuing to hold the title of the fastest-growing big economy in the world, the rupee has only recovered 0.2% so far this year after declining almost 10% in 2022.

The rupee is expected to stay virtually steady at 82.00 to the dollar by the end of October and gain by approximately 1% to 81.67 in six months, according to a poll of 45 FX strategists conducted between July 31 and August 2. On Wednesday, it was trading at around 82.58.

Compared to the 80.88 to 82.95 range seen so far this year, forecasts for the three-month period varied from 80.67 to 83.80 per dollar.

Robert Carnell, head of research and chief economist at ING, said, “I’m expecting the rupee to show some strength against the U.S. dollar in the near term, which we expect to be showing broad-based weakness as the peak in U.S. rates becomes apparent.”

“The rupee has been remarkably stable, much more stable than most other regional currencies, and that to me looks like there is a fair amount of intervention (from the RBI) happening,” the author said.

The reserves of the RBI have increased by more over $80 billion since October, when they had dwindled to around $525 billion.

Over 70% of strategists who expressed a view—25 out of 35—expect the rupee to rise versus the dollar from here, with expectations for rate cuts from the central bank pushed to the April–June quarter.

By the end of July 2024, the currency was projected to gain close to 2%, to 81.00/dollar, with projections ranging from 78.83 to 85.80.

“Over the medium term, we expect the rupee to appreciate,” said Dhiraj Nim, an ANZ FX analyst.

“A big danger will be a change in the RBI’s policy of maintaining the range-bound status of the rupee or an abrupt increase in commodities prices. We don’t anticipate the RBI to initiate the Fed’s rate reductions.