RBI has a chance to recoup lost reserves
mumbai — A strong inflow of foreign funds and benign oil prices have strengthened the Indian currency but what has worked best for the rupee is the fading impact of war hysteria. Experts now see a chance for the RBI to recoup the reserves it spent in 2018 defending the rupee.
Putting a number to this, Gurang Somaiya, currency analyst at Motilal Oswal, said: “It is possible that RBI may limit some of the appreciation and recoup some of its lost reserves... but it may only come if the rupee strengthens to around ₹68.20 a dollar.”
Explaining the factors at play, Anindya Banerjee, deputy vicepresident for Currency and Interest Rates with Kotak Securities, said that the gains of the rupee will help the Reserve Bank of India recoup reserves which it lost last year in a bid to arrest its fall.
“The rupee appreciated and closed at 70.14 for the last week on the back of strong flows,” said Sajal Gupta, head of Forex and Rates, Edelweiss Securities.
In addition, Gupta said that some “big flows are lined up next week. Maybe Arcelor Mittal money can hit the Indian markets which can lead to some more appreciation towards 69.50 unless the RBI intervenes”.
However, the rising dollar index is causing nervousness and any breakout may lead to a reversal in the rupee’s trend, said Gupta. Somaiya said that RBI may choose not to intervene as the central bank’s prime aim was to arrest volatility.
“Yes the rupee is inching below the 70-a-dollar mark but then the (general) election can cause massive volatility. Also, it is seen that a lot of central banks are getting into a dovish stance owing to the fears of global slowdown.”
The RBI had to stop the slump in the rupee late last year after it touched an all-time high of 74.47 on October 11 following the rising crude oil prices. —
Maybe Arcelor Mittal money can hit the Indian markets
Sajal Gupta, head of Forex and Rates, Edelweiss Securities