RUPEE MAY HIT 65.75 THIS WEEK
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.