The Indian rupee is on the brink of a historic low but still maintains its status as a preferred choice among certain investors within emerging markets. Factors such as a substantial reserve of $600 billion, foreign inflows into stocks amounting to over $16 billion this year, and a projected economic growth rate of 6.5% contribute to the positive outlook held by investment firms like Neuberger Berman Singapore and Columbia Threadneedle Investments.
Although the currency has been skirting its all-time low of 83.29, it has managed to evade this threshold thus far, largely attributed to interventions by the Reserve Bank of India.
RBI has been working on maintaining rupee’s stability
Ritesh Bhusari, the deputy general manager for treasury at South Indian Bank, mentioned that the Reserve Bank of India (RBI) aims to curb instability and one-sided fluctuations in the rupee’s value. Bhusari noted that given the RBI’s active involvement in the foreign exchange market, it appears challenging for the rupee to decline beyond the threshold of 83.25.
The Indian currency achieved its historic low of 83.29 in October of the previous year. While Bhusari acknowledged a leaning towards the rupee’s devaluation, primarily due to shifts in the dollar and other Asian currencies, he emphasized that the RBI’s intervention will moderate the pace of the rupee’s decline.
A senior trader from a private sector bank commented that the Reserve Bank of India (RBI) took steps today to swiftly dispel any notions that they might permit the rupee to reach an all-time low, aiming to quash such expectations promptly.
The rupee is expected to rise to 82 per dollar by 2023. Gaura Sen Gupta, an IDFC FIRST Bank Ltd. economist, holds a different view. She highlights the rupee’s susceptibility to additional downward pressure due to historically low-interest rate differentials with the U.S. In her assessment, she foresees the currency’s trajectory leading it toward the 84 mark in the upcoming months.
Indian rupee still showing signs of strength
Meanwhile, the Indian currency still has two additional factors supporting its position. Its lesser reliance on China, facing economic challenges, provides an advantage as it experiences comparatively lower impacts than other emerging market currencies.
A portion of the rupee’s decreased strength can be attributed to actions taken by the Reserve Bank of India (RBI) to amass reserves, thereby explaining why investors disregard this decline. The central bank has capitalized on the substantial inflow of funds into the country’s stock market by selling rupees to bolster its dollar reserves. Furthermore, the RBI has committed to curbing excessive fluctuations in value.
Lin Jing Leong, a senior analyst specializing in emerging market sovereigns at Columbia Threadneedle Investments, expects the RBI to persist in its intervention initiatives, maintaining a narrow and relatively steady trajectory for INR fluctuations. That, in turn, provides investors with an enhanced risk-adjusted return opportunity within the INR bond market.
