Yahoo Finance Bullish Case for Indian Rupee Dented by RBI’s Intervention Fears
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Hopes are running high that India’s rupee will stage a rebound as foreign inflows quicken. But analysts warn the central bank is likely to limit the gains.
MUFG Bank Ltd. predicts that the rupee will appreciate less than 2% to 82 per dollar by year-end while Australia and New Zealand Banking Group Ltd. says the currency will be little changed. The modest expectations are in line with the Reserve Bank of India’s overarching aim to keep the rupee stable, as well as the government’s goal to ensure that the currency’s strength does not hurt its exports.
“RBI’s objective is to prevent outsized moves in the rupee in either direction,” said Michael Wan, senior currency analyst at MUFG, adding that this would limit the rupee’s upside.
The RBI’s viselike grip on the rupee has made the currency one of Asia’s least volatile - a quality that helped burnish the appeal of Indian assets in a year when a resurgent dollar wreaked havoc in foreign-exchange markets. The central bank is likely to mop up inflows arising from India’s inclusion in key bond indexes instead of letting the rupee appreciate substantially, according to Barclays Plc analysts.
The rupee ended little changed at 83.4987 on Friday after sliding to an all-time low of 83.5750 last month.
Some traders are positioning for the currency to rebound, given that India’s inclusion in JPMorgan Chase & Co.’s bond index may draw as much as $30 billion of inflows. In addition, Goldman Sachs Group Inc. sees more foreign interest in Indian equities if Prime Minister Narendra Modi wins the ongoing election — another factor that will bolster the rupee.
Traders are also awaiting April consumer-price inflation data due Monday to help gauge the outlook for monetary policy, which will be crucial in determining the rupee’s path. The RBI has kept the key repo rate on hold for seven straight meetings and officials have signaled their reluctance to cut rates until inflation falls durably to 4%.
“If the dollar doesn’t strengthen further, 83.40-83.50 could be as high as it gets” for the currency pair, said Dhiraj Nim, economist and forex strategist at ANZ. “If the external risks worsen, then USD/INR has an upside in the near term but fundamentally speaking, the drift should be toward a slightly appreciated rupee into the year-end, which is 83 per dollar by December.”
Here are the key Asian economic data this week:
Monday, May 13: India CPI, Australian NAB business confidence
Tuesday, May 14: India wholesale prices
Wednesday, May 15: Australia wage price index, Indonesia import-export data, Philippines overseas cash remittances YoY
Thursday, May 16: Australia unemployment rate, BSP Overnight Borrowing Rate
Friday, May 17: Singapore non-oil domestic exports, Malaysia GDP, South Korea unemployment rate, China retail sales data and industrial production, Hong Kong GDP
--With assistance from Anup Roy, Kartik Goyal and Ravil Shirodkar.
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