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Rupee Poised for Gains: Key Inflows to Watch
3 Aug
Summary
- Rupee may appreciate to 94 against USD with strong FCNR(B) deposits.
- Sustained FPI inflows could further strengthen the Indian rupee.
- Stable crude oil prices between USD 80-90 are crucial for rupee's rise.
The Indian rupee is anticipated to strengthen, with potential movement towards the 94 mark against the US dollar. This appreciation is largely attributed to robust FCNR(B) deposits and consistent Foreign Portfolio Investment (FPI) inflows, according to Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities. Banerjee noted that 94 is a significant technical level for the USD/INR exchange rate.
Further strengthening beyond 94 could lead to increased exporter hedging, potentially pushing the rupee towards 92. Stable crude oil prices, maintaining a range of USD 80 to USD 90 for Brent, are essential for this positive trajectory. Substantial foreign capital, with close to USD 40 billion already recorded and monthly FPI flows averaging USD 3-4 billion, provides strong support.
Banerjee emphasized that despite lower crude oil prices, global uncertainties necessitate a strong capital buffer. Situations in West Asia and the US Federal Reserve's interest rate policies contribute to this need. A cushion of USD 60 to USD 70 billion by September is viewed as highly beneficial.
Regarding central bank intervention, Banerjee suggested it is premature for the Reserve Bank of India (RBI) to buy dollars at current levels, as the all-time low was near 97. Aggressive intervention is unlikely unless the rupee appreciates significantly towards the 90 level. Monetary policy is expected to remain on hold, with central banks closely monitoring global economic developments.
