Rupee to rise modestly against dollar in next three months, shows poll

The Indian rupee will strengthen only marginally against the US dollar over the coming three months as the Reserve Bank of India (RBI) uses its foreign exchange reserves to manage volatility and keep the currency relatively strong, a Reuters poll found.

While most emerging market currencies have weakened against the dollar so far this year, the rupee has traded in a tight range of 82.64/$-83.45/$ and is down less than 0.5 per cent.

That stability has been largely driven by the RBI's continued intervention in FX markets. Its foreign exchange reserves recently hit a record high of $642.63 billion.

"The RBI's two-way FX intervention to keep the rupee stable has capped volatility compared to USD/Asia. The RBI has been building up its foreign currency reserves, whenever possible, which are now at record high," noted Dhiraj Nim, a forex strategist at ANZ.

"It believes them, not the exchange rate, to be its first line of defense against external shocks. We expect this trend to continue and the rupee to gain modestly over 2024."

The rupee was expected to gain slightly to 83.11/$ in a month and 82.90/$ in three months from Wednesday's rate of 83.43/$, the March 28-April 3 Reuters poll of 46 foreign exchange analysts showed.

That outlook has remained largely unchanged for several months and has been unaffected by the greenback's relative strength so far this year.

The RBI is expected to keep the repo rate unchanged this week and then cut it in the third quarter. The US Federal Reserve is widely predicted to start reducing US borrowing costs in June.

But the risk the Fed may not only cut rates later but also cut fewer times than currently expected is increasing.

"The key risk to INR (Indian rupee) trajectory will be a further push back in the Fed's rate-cut cycle beyond June," said Aditi Gupta, an economist at Bank of Baroda.

"Growth (in the US) has been holding up, which may lead the Fed to delay its rate-cut cycle, which will make the case for a stronger dollar in the near term."

Still, the rupee was forecast to gain nearly 1.1 per cent to 82.50/$ in six months and around 1.7 per cent to 82.00/$ in a year.