Constant RBI intervention to keep rupee in tight range through 2024: Reuters poll

By Milounee Purohit

BENGALURU (Reuters) – The Indian rupee will trade in a tight range against the dollar this year as the Reserve Bank of India continues intervening to manage the exchange rate despite aggressive market bets for U.S. interest rate cuts, a Reuters poll of FX strategists showed.

The U.S. dollar index lost over 6% between early October and late December on speculation the U.S. Federal Reserve will slash rates this year starting in March. But the rupee hardly moved thanks to heavy use by the RBI of its $600 billion-plus reserves to maintain the value of the currency.

The rupee lost just 0.6% last year despite rampant dollar strength on Fed rate rises and traded in its narrowest range in over two decades, a trend currency experts say is likely to continue in 2024.

Median forecasts in the Jan. 3-4 poll of 42 analysts showed the rupee would trade around the current level of 83.23/$ at end-January and strengthen a tad to 83.00/$ by end-March.

“We are not expecting a sharper appreciation because the RBI will continue to absorb a large part of this to keep the rupee relatively stable,” said Sakshi Gupta, principal economist at HDFC Bank.

Still, expectations the Fed could ease rates more aggressively this year than the RBI have prompted analysts to predict modest gains for the rupee in the latter half of 2024.

The currency was forecast to gain around 0.5% from Wednesday’s level to 82.83/$ in six months and about 0.9% to 82.50/$ in a year, barely changed from last month’s forecasts.

Predictions were in a tight range, between 80.00/$ and 85.00/$ over the coming 12 months.

Ranges for 12-month forecasts have narrowed significantly over the past few months, with the standard deviation in Reuters rupee polls currently near the lowest in at least a decade, suggesting analysts expect the RBI to continue intervening.

The International Monetary Fund recently revised India’s exchange rate regime to a “stabilised arrangement” from “floating” due to the regular use of its hefty foreign currency reserves which currently stand at over $620 billion.

“The RBI has been de facto pegging the currency. If we knew their rationale for doing so, it would be easier to guess whether it would continue, but we don’t,” said Robert Carnell, regional head of research, Asia Pacific at ING.

“Though the RBI still seems to have decent FX reserves so there is no obvious impediment to this experiment continuing.”

(For other stories from the January Reuters foreign exchange poll:)

(Reporting by Milounee Purohit; Polling by Anant Chandak; Editing by Hari Kishan, Ross Finley and Toby Chopra)