RBI intervention to keep rupee in tight range, analysts say: Poll

The Indian rupee will trade in a narrow range over the coming three months and then strengthen slightly in a year as the Reserve Bank of India uses its vast foreign exchange reserves to keep the currency stable, a Reuters poll found.

Expected volatility in the rupee over the next three months was at its lowest in two decades as the Indian central bank continued to buy dollars, adding to its FX reserves of over $600 billion.

After falling over 10% in 2022, the rupee has gained just 0.2% so far this year and is unlikely to recoup those losses anytime soon, despite India retaining its title as the world's fastest-growing large economy.

The July 31-Aug. 2 survey of 45 FX strategists forecast the rupee will remain largely unchanged at 82.00 to the dollar by end-October and strengthen about 1% to 81.67 in six months. It was trading around 82.58 on Wednesday.

Forecasts for the three-month period ranged from 80.67/dollar to 83.80/dollar, only slightly wider than the 80.88 to 82.95 range seen so far this year.

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

"If you look at the rupee, it has been exceptionally stable, far more stable than most other regional currencies, and that to me looks like there is a fair bit of intervention (from the RBI) happening."

The RBI's reserves, which had fallen to around $525 billion in October, have since risen by over $80 billion.

With rate cut expectations from the central bank pushed to the April-June quarter, over 70% of strategists who had a view, 25 out of 35, expect the rupee to strengthen against the dollar from here.

The currency was expected to strengthen nearly 2% to 81.00/dollar by the end of July 2024, with forecasts in a 78.83-85.80 range.

"Over the medium term we expect the rupee to appreciate," said Dhiraj Nim, FX strategist at ANZ.

"A key risk will be a reversal in the RBI's strategy of keeping the rupee rangebound or an alacritous rise in commodity prices. We don't expect the RBI to front run the Fed's rate cuts."