Citi expects, dollar can go up to 85 to a rupee, while Barclays predicts that there are high risk of the rupee exceeding 85 to a dollar
Reserve Bank of India has not been able to seize the momentum of falling rupee, Citigroup Inc. and Barclays analysts said, leaving local currency is making dollar more powerful and rupee more vulnerable.
Analysts of Citi expecting rupee to hit 85 to per dollar, while Barclays experts predict that rupee can go to 84-85 per dollar but for a short-term. Standard Chartered Plc has also extended its long dollar/rupee trade after rupee hitting 83.
The rupee has been hitting lows since late September, on 20th October it hit 83.29, making it the lowest point ever and one of worst Asian currency over the past month.
If the rupee hits 85 to a dollar by this year-end, it would have lost 12.5% of its value, that also would be the steepest decline in a decade. While the Reserve Bank of India has stepped in regularly to smoothen the rupee’s drop, analysts expected that the intervention is draining the foreign exchange pile at a robust place.
“RBI has been trying to diminish the unstability between USD and INR still, but has not yet been able to draw the lines in the sand may go higher, especially with valuation losses taking a toll on reserve and optics of reserve coverage ratios decreasing,” Gaurav Garg and Gordon Goh, Citigroup Analysts, wrote in a note.
Reserve Bank of India Governor Shaktikanta Das has defended the monetary authority’s intervention policy, pointing out that the recent erosion in India’s foreign-exchange reserves was mainly due to a weaker rupee and the pile remains healthy.
RBI has sold nearly $8o billion in between April and September in spot and forwards, including the NDF and FX futures markets, as per Barclays estimates. It said, for perspective, the RBI sold around $50 billion the last time when rupee came down in fiscal 2019, after accumulating a similar amount.
Shaktikanta Das, Governor of the Reserve Bank of India,“These risks are real, but they are unavoidable if India is to progress to be an economic superpower. The macroeconomic policy would need to measure up to such risks. Internationalization would make domestic monetary policy more challenging but the alternative of compromising on growth by playing it safe is clearly not an optimal choice. We need to calibrate our moves to the evolving size of our economy, particularly the size of the external sector and to our appetite for risk in framing policy for external trade and capital flows. But the direction is clear.”
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