JPMorgan says Patel open to strong rupee
A weaker rupee would risk importing inflation just when surging oil prices add to concerns
The Reserve Bank of India’s currency intervention policy during Governor Urjit Patel’s term is allowing for greater two-way rupee movement than under his predecessor, according to JPMorgan Chase & Co.
“The RBI under Dr Patel has been more open to rupee strength,” Brijen Puri, JPMorgan’s head of markets for India, said in an interview. That’s a key shift in policy which, under Raghuram Rajan, was focused on keeping the currency in a “reasonably fixed depreciating band,” he said.
Patel’s strategy is probably guided by the central bank’s focus on keeping consumerprice gains under 4 per cent in the medium term. A weaker rupee would risk importing inflation just when surging oil prices are adding to concerns over slowing growth and potentially worsening public finances in Asia’s third-largest economy. India imports twothirds of the crude it needs.
“We have probably seen the best of the inflation down cycle and it will go up from here,” Mumbai-based Puri said last week. “The current RBI regime seems to have a lot more thought about weaker rupee feeding down into inflation.”
The recent rise in crude oil prices may add three-to-five basis points to retail inflation for the rest of the financial year that ends March 31, Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, the nation’s largest lender, wrote in a November 8 report. The central bank didn’t answer an email seeking comments. It has maintained that it intervenes only to curb volatility and doesn’t target any particular level for the rupee.
Rajan took charge of the central bank during the 2013 taper tantrum, with his threeyear term largely taken up in tackling the fallout from the sell-off in emerging nations’ assets and restoring stability in local markets. India’s foreignexchange reserves rose about $93 billion (Dh341 billion) during his tenure to around $368 billion in early September 2016. The stockpile is now at $399 billion.
Puri expects the pace of the RBI’s reserves addition to slow as concern over rising equity valuations and India’s restrictions on foreign ownership of its debt cause overseas inflows to moderate.