POLL-RBI's heavy hand to keep Indian rupee in tight range for some time

Credit: REUTERS/Anushree Fadnavis

By Milounee Purohit

BENGALURU, Dec 6 (Reuters) - The Indian rupee will trade in a tight range against the dollar in the year ahead, according to FX strategists in a Reuters poll who reckon it will be at least six months before the Reserve Bank of India (RBI) stops intervening heavily in markets.

After firming for most of this year, the dollar has recently lost momentum as markets bet the U.S. Federal Reserve will begin cutting interest rates next year, helping most emerging market currencies to regain some lost ground.

But the rupee, which hit a record low of 83.42 to the dollar on Nov. 10, has not benefitted from the weakening greenback and remained nearly flat through November despite the economy growing at a stellar 7.6% last quarter, far ahead of its peers.

That stability was mostly due to the RBI's regular interventions to reduce the currency's volatility.

Nearly one-third of analysts, 12 of 37, expected the currency to touch a new record low by the end of this month.

The rupee is then forecast to gain only about 0.6% to 82.80 in 12 months.

"RBI's active two-sided FX intervention has reduced rupee volatility considerably. It is likely for such a scale of intervention to continue over fiscal year 2025," said Vivek Kumar, economist at QuantEco.

Two expected it to reduce its interventions in one to three months while seven said three to six months.

But with fed fund futures pricing in the Fed to start easing policy rates as soon as March, some analysts say the rupee could gain moderately against a weakening dollar.

"Once the market has decided the Fed has concluded its hiking cycle and is ready for pivoting, it is impetus enough to benefit all currencies, particularly the rupee," said Dhiraj Nim, FX strategist at ANZ.

"I think interest rate differentials matter more for flows when the changes in them are driven by U.S. interest rates."

(Reporting by Milounee Purohit; Polling by Veronica Khongwir and Susobhan Sarkar; Editing by Hari Kishan and Kim Coghill)

((Milounee.Purohit@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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