Indian banknotes of 2,000 rupees, 500 rupees and 200 rupees.
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NS Indian rupee According to UBS, this year is one of the most stable currencies in the Asia-Pacific region, but its stability is expected to be short-lived.
A Swiss investment banking strategist wrote in a note dated August 25 that the Indian currency had fallen to $ 77 a dollar by the end of the year, more than 5% below current levels, and by September 2022. He said he expects it to fall to $ 79.5. ..
“We see the stability of the INR since the beginning of the year as short-lived,” UBS said, adding that the recession of US Treasuries would bring stability loaned to currencies like the rupee.
The rupee changed hands at about 72.98 per dollar on Friday, strengthening about 0.19% from the January level and rising from the level of about 74.11 last month.
According to Gaurang Somaiya, a foreign exchange analyst at Motilal Oswal, a diverse financial services firm based in Mumbai, the resilience of the rupee has been driven by two main factors.
“First, a consistent flow of funds is positive for Rupees, and second. [Reserve Bank of India] I made a reserve and bought dollars to prepare for volatility. “
Mr. Somaya added that the flow of funds was guided not only by foreign institutional investors but also by a consistent flow of foreign direct investment.
Influx of FDI equity Investment in India increased 168% year-on-year to $ 17.57 billion between April and June. This is the first quarter of fiscal year 2022 in India.
“The flow of money was one of the main reasons that helped the rupee rise steadily,” Somaya said. He pointed out that between August last year and the present, the rupee has been stuck in a relatively wide range of 72-75 against the dollar.
This suggests that the RBI is “very active in managing rupee volatility” and is using its intervention to build foreign exchange reserves to near record highs, he said.The latest data is about RBI $ 616.9 billion foreign exchange reserves As of August 20th.
Mr. Somaya said he expects the rupee to rise in the short term in response to the surge in the domestic stock market. He predicted that the currency could rise to levels close to 72.20 against the dollar by the end of the year. In 2022, he expects the rupee to trade at the 73.50-74 level as the US currency rises.
last year, India recorded a current account surplus For the first time in more than 10 years due to the collapse of domestic demand for imports as a result of a pandemic. This meant that the value of goods, services and investments in India was lower than the amount left the country.
In the first three months of this year in India Current account deficit expanded to $ 8.1 billion, Or because the economy has recovered slowly, 1% of GDP.
UBS strategists said India’s quarterly current account has deteriorated sharply since last year due to a rebound in oil prices.
“Given the expectation that India’s current account deficit will continue in the range of 1-1.5% until 2022. [rupee] We will be under pressure as US yields begin to recover towards 2% by the end of the year. “
The British investment bank HSBC has a more positive view of the Indian currency. The rupee expects to reach 73 against the dollar by the end of the year, saying the currency is likely to level off at the end of 2020. In the long run, banks expect a modest weakness in which the rupee could weaken against the dollar to 75.
Madan Lady, Asian foreign exchange strategist at HSBC Global Research, told CNBC that the rupee was “relatively” in a strong dollar environment as the currency could withstand external headwinds through sustained FDI inflows and improved foreign exchange reserves. Expected to remain “good”.
“Therefore, the uncertainty about slowing global growth and the Fed’s policy normalization is [rupee] As an Asian outperformer. “
We Federal Reserve Chair Jerome Powell Last month Central banks are likely to begin withdrawing some monetary easing policies by the end of the year, Although he still sees interest rates rise in the distance.
Lady said the potential US monetary tightening and the re-expansion of India’s current account deficit indicate a rise in the dollar-rupee pair. However, he added that the rupee’s undue weakness is unlikely, as the RBI will eventually remove excess liquidity conditions from the economy and curb inflation expectations.
He pointed out that recent central bank forex purchases have helped curb long-term depreciation expectations among local traders.
“In our view, RBI’s FX policy will continue to be a major driver of Rupee’s performance,” said Lady, an incentive for central banks to accept Rupee’s power unless capital inflows are widespread. Added that there are few.
“For now, RBI [dollar/rupee] It has fluctuated within the trading range of 72.5-75.5 since the beginning of the year. “
Motilal Oswal’s Somaiya added that while domestic factors such as growth recovery favor a stronger rupee, global factors could limit profits on the dollar.
Indian Rupee (INR) outlook
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