Rupee unlikely to gain sharply in short term, seen range-bound
Mumbai: The Indian rupee, which closed on two-month high on Tuesday, is unlikely to gain sharply from the current levels in December despite expectation of sustained foreign flows into the local equity market, according to currency dealers.
On Tuesday, the rupee closed at a two-month high against the US dollar, tracking gains in the Asian currencies markets. The home currency closed at 64.41 a dollar, a level last seen on 20 September, up 0.14% from its previous close on Friday. On Wednesday, the rupee opened at 64.46.
Most currency dealers do not expect the rupee to easily rise from the current levels because of seasonal year-end shortage of dollar as foreign portfolio investors either unwind their positions, especially in the debt market, or avoid fresh buying.
So far this year, the rupee has gained 5.4%, while foreign institutional investors have bought $8.82 billion and $22.61 billion in equity and debt, respectively.
“Our assessment is that the RBI (Reserve Bank of India) seems to be comfortable with the 64.30 level and any rise from this level will only be gradual,” said treasury head of a large conglomerate, on the condition of anonymity as he is not authorised to speak to the media.
However, Sajal Gupta, head of forex and rates at Edelweiss Securities, said the Indian currency can potentially rise to a level of 64.20 a dollar in the short term backed by foreign portfolio investor (FPI) flows in to the share market as well as lowering of geopolitical tensions and less hawkish policy stance by the US Federal Reserve.
“If the 64.20 per dollar level is tested in a gradual way, INR can rise to 63.80 level depending on how the RBI intervenes in the currency market to protect the interest of exporters,” he said.
The central bank has always maintained that it does not target any particular level for the rupee and it intervenes into the currency market only to curb excess volatility.
Dealers said as immediate trigger, the market will be awaiting the second quarter gross domestic product (GDP) data due on 30 November.
According to Bloomberg analysts’ estimates, gross value added (GVA) will be at 6.3% from 5.6% a quarter ago, while GDP will be at 6.5% from 5.7% last quarter.
“Despite better growth, the rupee’s upside is likely to be limited. The rupee has a counter-intuitive inverse relationship with growth. The rupee depreciated when growth rose to 9% in 2015-16 and was stable-to-firmer when growth fell over the past year to below 6%,” DBS wrote in a note on Wednesday.
“Looking ahead, India’s trade, current account and fiscal deficits have started to widen again this fiscal year. Apart from a larger oil trade bill, higher oil prices will also underpin inflation,” it added.