© Reuters. An Indian rupee note is seen in this illustration photo on June 1, 2017. REUTERS/Thomas White/Illustration
Written by Shalu Shrivastava and Anant Chandak
BENGALURU (Reuters) – The rupee will hold onto its recent gains against the dollar in the coming months and will rise slightly in a year due to strong macro trends and expectations that the Federal Reserve is nearing the end of its rising cycle, a Reuters poll showed. .
Despite the RBI ending its already modest rate hike cycle long before many of its peers, the rupee is up nearly 1% for the year on large inflows of foreign capital in a bright economic outlook.
A separate Reuters poll showed that Asia’s third-largest economy is expected to grow by 6.1% in the current fiscal year, making it the world’s fastest-growing large economy.
While regular interventions from the Reserve Bank of India prevented the rupee from slipping, they also stopped the currency from strengthening too much, causing it to trade in a narrow range of 80.88-82.95 this year.
The median forecast in the July 3-5 poll of 40 strategists showed that the rupee would trade at 82.00/$ in one and three months, 81.80/$ in six months and 81.00/$ in a year. This outlook is largely unchanged from last month.
The rupee was trading around 82.22/dollar on Wednesday.
“It basically boils down to where the RBI wants the rupee to stabilize… In the last year, the RBI has spent a lot of reserves defending $80.00/$ levels and they won’t want to break through those levels easily, even if the dollar weakens,” he said. Abhishek Upadhyay, Chief Economist, ICICI Securities.
“It’s probably going to need some thematic shift, some big incentive for them to allow for a bigger move.”
About two-thirds of the analysts surveyed expected the rupee to be at 82.00/$ or weaker in a single month, and none of them have seen it exceed the 81.50 level.
Over 70% of analysts, 27 out of 37, expect the currency to change hands at $82.00/$ or stronger in 12 months. Only two expected the price to go below 80.00/dollar.
“The US central bank has indicated that there may be two more interest rate hikes,” said Sakshi Gupta, chief economist at HDFC Bank. “If the data from the labor market and with respect to inflation turns out to be unfavorable… it could be a risk to the outlook and the rupee could move back towards 83.”
(For other stories from the July Reuters FX Poll:)