RBI to keep rupee in tight trading range: Reuters poll by Reuters

By Veronica Dudei Maia Khongwir

BENGALURU (Reuters) – The Indian rupee will be limited to a narrow trading range against the U.S. dollar next year as the Reserve Bank of India continues to intervene in the market to protect the currency from volatility, a Reuters poll of FX analysts showed. .

The dollar fell more than 2 percent against other major currencies in August, giving some emerging markets some breathing room. The rupee fell to an all-time low of 83.97 to the dollar, but is down only about 1 percent so far this year.

This relative stability was primarily driven by a familiar pattern of the RBI intervening in the foreign exchange markets. Its foreign reserves hit a record high of $681.69 billion at the end of last month, revealing the central bank bought dollars amid expectations of rate cuts by the US Federal Reserve.

The Indian currency was expected to strengthen from Wednesday’s 83.96 to the dollar to 83.75 by the end of November and 83.60 in six months and remain there in a year, a Reuters poll found on 2 -August 4, made by 45 currency analysts.

“Even as the dollar has eased, the rupee has refused to strengthen at the same time. This is something we expected, in the sense that the Reserve Bank of India remains very present in the market,” said Dhiraj Nim, economist at ANZ.

“RBI has the formula that has worked well for them… they will continue with their bilateral FX buying and selling intervention to keep the rupee in that tight range and continue to test this 84 level that RBI has sorted. to draw a line in the sand.”

Analysts said the RBI’s intervention was aimed at bringing the partially convertible currency back to its fair value as it was currently overvalued by at least 7%.

The latest data from the central bank’s monthly bulletin showed that the rupee’s trade-weighted real effective exchange rate was 107.33 in July, the most expensive against its trading partners since December 2017.

“I think (rupee overvaluation) will be addressed because at the end of the day we have to make sure that exports are competitive and the real effective exchange rate is what the RBI will look at,” said Suman Chowdhury, chief economist at Acute Assessments .

More than 40% of respondents, 14 out of 35, who took a longer-term view, expected the rupee to hit a record low.

(Other stories from September’s Reuters currency survey)