Mumbai: The rupee may rise past 39 against the dollar before year-end as the cut in US interest rates prompts global funds to seek the nation’s higher returns, ICICI Securities Ltd strategists predict.
ICICI Securities, a unit of India’s second-biggest lender, joins ABN Amro Holding NV, BNP Paribas SA, and Morgan Stanley as the most bullish forecasters betting the currency will break beyond that level.
Record inflows into Indian stocks this year have already seen the rupee reach a nine and a half year high, with the Reserve Bank of India (RBI) stepping in to slow the appreciation as exporters complain the gains are hurting earnings.
“We see RBI allowing some rupee appreciation and also continuing with its intervention policy,” A. Prasanna and Nitin Bhadauria, Mumbai-based strategists at ICICI Securities, wrote in a research note. “Flows will keep continuing.”
The rupee was little changed at 39.3225 to the dollar in Mumbai, after completing the seventh monthly gain of the year in October, according to data compiled by Bloomberg. The currency rose to 39.27 on 11 October—the highest since 26 February 1998.
The rupee is set for its best annual performance in at least 33 years as stock purchases by global funds pushed the Bombay Stock Exchange’s benchmark index above 20,000 for the first time this week.
The median forecast for the currency in a Bloomberg survey is 39.50 by year-end.
ABN predicted 38.38 and BNP Paribas and Morgan Stanley 38.50—the most bullish of the 25 banks surveyed.
Forward contracts, where assets are bought and sold at current prices for future delivery, don’t show that the currency will rise past 39 in the next four years.
RBI only will slow the pace of the rupee’s gains as the currency rises to the highest in almost a decade, the ICICI strategists wrote.
The rupee is the second best performer this year among currencies of the 17 biggest economies in Asia, trailing only the Australian dollar. It has climbed almost 3% since the Federal Reserve cut interest rates for the first time since 2003 on 18 September.
India’s central bank is likely to keep the overnight interest rate at 6%, the ICICI strategists wrote, because of “constraints” from the cost of servicing the debt it issues to soak up rupees from the banking system as it intervenes.
RBI bought a record $40 billion (Rs1.6 trillion) of foreign exchange in the eight months through August to help avert slowing export growth.
Overseas shipments grew an average 14.4% in the eight months through August, compared with 22.4% in the same period a year earlier, according to government data.