RBI to recoup forex reserves despite being put on US watch list: BofA Merrill Lynch
New Delhi: The Reserve Bank of India (RBI) is expected to recoup forex reserves despite India being put on currency manipulator watch list by the US, says a report by BofA Merrill Lynch Global Research.
RBI will follow an asymmetric forex policy of buying forex when the US dollar is weakening and allowing Rs65-66/USD when it strengthens, according to the report.
“We continue to expect the Reserve Bank of India (RBI) to recoup forex reserves if it can, despite being put on the US Treasury Report’s currency manipulator watch list,” the report noted.
Last week, the US added India to the currency practices and macroeconomic policies monitoring list, saying New Delhi increased its purchase of foreign exchange over the first three quarters of 2017, which does not appear necessary.
India is the sixth addition to the watch list which comprises China, Japan, South Korea, Germany and Switzerland.
According to the authorities’ data, India has generally been a net purchaser of foreign exchange since late 2013, when the RBI sought to build a stronger external buffer in the wake of large emerging market outflows globally.
The global brokerage cited three reasons for the RBI to recoup forex reserves. Firstly, forex reserves are inadequate. Secondly, RBI’s forex intervention is unlikely to touch 2% of GDP required to be named currency manipulator; and thirdly, the government will also likely want the RBI to accumulate forex reserves to maintain a stable rupee.
According to BofAML forex strategists, rupee is expected to be around 64.25 per US doller in December.
The rupee on Thursday depreciated 15 paise to 65.81 against the US dollar in opening trade at the interbank forex market on increased demand for the greenback from importers and banks.