Written by Anant Chandak
BENGALURU (Reuters) – The Indian rupee will trade in its narrowest range in nearly three decades next year as the Reserve Bank of India continues to maintain a tight grip on currency movements, a Reuters poll showed.
While most emerging market currencies have underperformed against the dollar in the past two years, the rupee has remained remarkably stable thanks to the Reserve Bank of India’s foreign exchange reserves of about $650 billion, which it has deployed regularly to limit volatility.
Implied volatility for the currency, hovering around its lowest level in nearly two decades, is expected to remain steady at least until the end of the year, according to a Reuters poll of 40 foreign exchange strategists conducted July 1-3.
The median forecast showed the rupee trading at 83.41 against the dollar by the end of September, and by the end of 2024 the currency would touch 83.20, the same level it was trading at on Wednesday.
The rupee was expected to appreciate by 0.6% to Rs 83.00 per dollar in one year.
“The rupee remains dominated by the RBI’s steady focus on reducing volatility, and limiting any impact from portfolio flows or changes in fundamental expectations,” said Abhay Gupta, fixed income and FX strategist for emerging Asia at Bank of America Securities.
“Despite the short-term benefits, too much of a good thing can have side effects. The RBI may have over-contained volatility by pushing it to levels well below the rupee’s historical ranges and comparable to dollar-pegged currencies.”
The analysis showed that the standard deviation of expectations for the next six months was at its lowest level in at least two years, indicating that the Reserve Bank of India will allow the rupee to trade only in a narrow range.
However, a few forex strategists expect the currency to hit an all-time low by this time next year.
“As the Fed has come in late to the global monetary easing cycle, the dollar is likely to remain supported. Against this backdrop, we expect the rupee to register modest weakness in 2024-25,” said Vivek Kumar, economist at QuantEco Research.
Federal Reserve Chairman Jerome Powell said Tuesday that the United States is back on a “deflationary path,” but warned that inflation may not reach its 2% target until late next year or even 2026.
“Although the rupee may continue to weaken, the magnitude of the decline will not be a cause for concern,” said Kumar of QuantEco.
He expected the rupee to fall to a new low of Rs 84.50 per dollar by the end of 2024.
(For more information on the Reuters Foreign Exchange Survey for July:)