A Reuters poll has revealed that India’s rupee will be nearing its lowest point in six months, despite the Reserve Bank of India using its resources to reduce volatility, with over 30% of analysts anticipating it hitting a new low in ten years.
The rupee experienced a decline to 83.18, its lowest point in 20 years, on Wednesday, approaching its all-time high of 93.29/$ record low from October 20, when U.S. yields were expected to keep the dollar well-bidged.
Despite this, the RBI’s consistent actions, which have reduced foreign currency reserves to less than $600 billion, had minimal depreciation.
According to a media poll of 45 analysts from September 1-11, the rupee was expected to reach 82.88 dollars and 81.75 dollars by the end of November.
The prediction was that the value would have risen by less than 1% from Wednesday’s level to 82.50 per dollar over six months and by roughly 1.5% to reach 81.95 per year.
Robert Carnell, the regional head of research at ING, stated that the rupee is still being managed within a tight range, but it has been moved up to the top of its trading band. Without intervention, however, it could potentially weaken, and even then, there is no sense for the RBI to intervene.
“This month, inflation will increase again and remain high for a few months before returning to its target range, which usually results in the rupee’s weakening. However, the continued rise in global food prices is another reason to maintain the currency’ll strength until the softener becomes stronger.”
Despite expectations that inflation in India would remain above the RBI’s 2% to 6% target range until October, the central bank has chosen to use market mechanisms instead of policy measures to strengthen the currency.
In August, the RBI expended around $14 billion in foreign reserves within a month.
A poll conducted a month ago revealed that the forecasts for the next 12 months were in fewer than two weeks, with values ranging from 80.00/$ to 85.33/dollar.
Over 33% of the 45 economists surveyed predicted that the currency would hit an unprecedented low in the next year.
Thamashi De Silva, an assistant India economist at Capital Economics, believes that the central bank is well-positioned to increase its involvement in the FX market, even if the rupee experiences a drop in value in coming months.
“Our end-year forecast of 83.0/$ indicates that the rupee may not fare as well as we anticipated, but we anticipate the economy to bounce back next year with ease from the Fed’s policy liberalization and U.S. Treasury yields.”
See other results from the foreign exchange poll by Reuters in September:
The team of reporters was composed of Anant Chandak for reporting, Veronica Khongwir and Milounee Purohit for polling, and Jonathan Cable and Sharon Singleton for editing.
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