Rupee to trade narrowest range in nearly 3 decades

The Indian rupee is expected to exhibit minimal movement over the coming year, according to a Reuters poll. This forecast signifies the continuation of a trend towards the currency’s narrowest trading range in nearly three decades.

The Reserve Bank of India’s (RBI) persistent efforts to manage currency volatility are credited with this remarkable stability.

While most emerging market currencies have depreciated significantly against the US dollar in the past two years, the rupee has remained remarkably resilient.

This stability is attributed to the RBI’s sizeable foreign exchange reserves, estimated to be nearly $650 billion. The central bank has strategically deployed these reserves to curb volatility in the rupee’s exchange rate.

The poll, conducted by Reuters from July 1st to 3rd and involving 40 foreign exchange strategists, revealed that the rupee’s implied volatility is expected to stay near its lowest level in nearly two decades, at least for the remainder of 2024.

Median forecasts from the poll suggest the rupee will trade at 83.41 per dollar by the end of September 2024. By year-end, it is projected to reach 83.20 per dollar, which is roughly equivalent to its current trading level as of Wednesday.

Overall, the rupee is anticipated to experience a modest appreciation of 0.6 per cent to 83.00 per dollar within the next year.

The rupee is strongly impacted by the RBI’s efforts to reduce volatility, said Abhay Gupta, an emerging Asia fixed income and forex strategist at BofA Securities.

Analysis revealed that the standard deviation of forecasts for the next six months is close to its lowest point in at least two years. This suggests the RBI intends to maintain a tight band for rupee trading.
Attribution: Reuters