The RBI is un­likely to in­ter­vene in the for­eign ex­change mar­ket af­ter the ru­pee was added into the cur­rency ma­nip­u­la­tor’s list by the US, and is likely to de­pre­ci­ate to­wards Rs 65.75/$1 in the week.


THE Re­serve Bank of In­dia is un­likely to ac­tively in­ter­vene in the for­eign ex­change mar­ket af­ter the ru­pee was added into the cur­rency ma­nip­u­la­tor’s list by the US, and this would lead the ru­pee to de­pre­ci­ate to­wards Rs 65.75/$1 in the week to April 20, a poll showed.

Adding to this, lack of FII in­flows into lo­cal stocks ow­ing to US-Rus­sia tus­sle over Syria is likely to keep the ru­pee weak.

The ru­pee may trade in the Rs 65.10-65.75/$1 range with an up­ward bias, in the week to April 20 com­pared to the Rs 64.8465.445/$1 range seen in the pre­vi­ous week, a poll of nine for­eign ex­change deal­ers showed on Mon­day.

"The key fo­cus, this week, will re­main on lat­est de­vel­op­ments from Syria at­tacks and the China-US trade war. Oil im­porters' dol­lar bids will keep the ru­pee under pres­sure. As US trea­sury has added the ru­pee to its cur­rency watch list, we may not see ac­tive in­ter­ven­tion by the RBI in the forex mar­ket," said a dealer with a pri­vate-sec­tor bank.

Ac­cord­ing to a for­eign ex­change dealer with a lo­cal bro­ker­age, "RBI in­ter­venes in FX mar­ket only when spec­u­la­tive ac­tiv­ity takes place. Dur­ing the past cou­ple of days, the ru­pee was weighed down by oil im­porters' de­mand, and not be­cause of spec­u­la­tions. So this week, any RBI in­ter­ven­tion is un­likely."

On Satur­day, the US trea­sury depart­ment had added In­dia to its cur­rency mon­i­tor­ing list along with five other ma­jor trad­ing part­ners, in­clud­ing China, Ger­many, Japan, and South Korea, for not meet­ing the stan­dards of cur­rency prac­tices and macroe­co­nomic poli­cies.

"Given that In­dian for­eign ex­change re­serves are am­ple by com­mon met­rics, and that In­dia main­tains some con­trols on both in­bound IN­DIA made a sur­pris­ing en­try on the US trea­sury’s cur­rency watch­list last week, but it’s some way from be­ing la­belled a ma­nip­u­la­tor of the ru­pee.

The trea­sury cited In­dia’s “sig­nif­i­cant” trade sur­plus with the US and in­creased pur­chases of forex last year as rea­sons for greater scru­tiny. Tai­wan and Thai­land, both run huge cur­rent ac­count sur­pluses and whose cen­tral banks in­ter­vened in mar­kets, weren’t put in the list.

The re­port iden­ti­fies three cri­te­ria to la­bel a coun­try as a cur­rency ma­nip­u­la­tor: a bi­lat­eral trade sur­plus of at least $20 bil­lion, a cur­rent ac­count sur­plus of 3 per cent of GDP or more, and for­eign ex­change in­ter­ven­tion of at least 2 per cent of GDP in the past year.

“There is very lit­tle chance that In­dia will meet all three cri­te­ria and be and out­bound flow of pri­vate cap­i­tal, fur­ther re­serve ac­cu­mu­la­tion does not ap­pear nec­es­sary," said the US Trea­sury re­port.

How­ever, Bank of Amer­ica Mer­ril Lynch be­lieves de­spite be­ing put on the US trea­sury re­port's cur­rency ma­nip­u­la­tor watch list, RBI may re­coup forex re­serves if called a ma­nip­u­la­tor, as it has per­sis­tently been run­ning cur­rent ac­count deficits since 2005,” Khoon Goh, head of Asian re­search at Aus­tralia & New Zealand Bank­ing Group in Sin­ga­pore, wrote in a note on Mon­day. Bi­lat­eral trade sur­plus: In­dia’s bi­lat­eral trade sur­plus—mer­chan­dise and ser­vices—with the US stood at $28 bil­lion in 2017, ac­cord­ing to the trea­sury re­port. The sur­plus is marginally lower than the $30.8 bil­lion in 2016, ac­cord­ing to data it can.

"The RBI's FX re­serves are in­ad­e­quate: im­port cover, at 11 months. Sec­ond, we see RBI FX in­ter­ven­tion at $15 bil­lion/0.6 per cent of GDP in FY19 —well be­low 2 per cent of GDP re­quired to be named cur­rency ma­nip­u­la­tor—with the cur­rent ac­count deficit set to rise to from the US trade rep­re­sen­ta­tive of­fice. In­dia’s goods trade sur­plus with the US stood at $23 bil­lion in 2017, ex­ceed­ing the trea­sury’s thresh­old. Cur­rent ac­count sur­plus: Al­though In­dia en­joys a trade sur­plus with the US, over­all the South Asian na­tion runs a deficit. It’s also been run­ning a cur­rent ac­count short­fall for more than a decade. The gap was at $13.5 bil­lion in Oc­to­ber-De­cem­ber, or 2 per cent of GDP. Cur­rency in­ter­ven­tion: In­dia has seen large forex in­flows over the past few years given the rel­a­tively high yields on its as­sets and a pick up in FDI. That’s en­abled the RBI to build re­serves to more than $420 bil­lion. The cen­tral bank con­ducted net pur­chases of for­eign ex­change to the tune of $56 bil­lion in 2017, in­clud­ing ac­tiv­ity in the for­ward mar­ket, the Trea­sury re­port said. This is equiv­a­lent to about 2.2 per cent of GDP. 1.9 per cent of GDP when port­fo­lio in­flows are slow­ing," said In­dranil Sen Gupta, econ­o­mist at BofAML

Mean­while, the ru­pee plunged by 29 paise, or 0.44 per cent, on Mon­day to close at a six-month low of 65.49 against the dol­lar.

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