Indian Rupee Trading Outlook

By Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – The Indian rupee is expected to trade within a narrow range against the U.S. dollar over the next year due to ongoing interventions by the Reserve Bank of India (RBI) to stabilize the currency. A recent Reuters poll of FX analysts indicated that while the dollar depreciated by over 2% against major currencies in August, the rupee remains relatively stable, having only slipped about 1% year-to-date despite reaching a record low of 83.97 to the dollar.

The RBI’s interventions have been crucial, as evidenced by the record high foreign exchange reserves of $681.69 billion at the end of last month—this reflects the central bank’s strategy of purchasing dollars amid expectations of U.S. rate cuts.

The rupee is predicted to strengthen slightly against the dollar, moving from 83.96 down to 83.75 by the end of November and 83.60 in six months, with stability anticipated over the year. According to Dhiraj Nim, an economist at ANZ, the RBI has effectively maintained a presence in the FX market to control the rupee’s fluctuations.

Analysts note the RBI aims to return the rupee to its fair value, currently deemed overvalued by at least 7%. The central bank’s monthly bulletin reflects this concern, reporting a trade-weighted real effective exchange rate of 107.33 in July, its highest since December 2017.

Suman Chowdhury, chief economist at Acuite Ratings, emphasized the need for competitive exports, highlighting that the RBI will look to address the rupee’s overvaluation.

Over 40% of long-term respondents in the poll expressed concerns about the rupee potentially hitting a new low.

(Other stories from the September Reuters foreign exchange poll)