According to Crédit Agricole CIB, the currency’s main forecaster, the Indian rupee should end its recent phase of volatility due to increased foreign capital inflows and a possible hawkish turn in central bank fluctuations.
After going from the best performance in Asia in the first quarter to its worst in April when another wave of Covid-19 infections set in, the rupee is now expected to trade within narrow ranges over the next few years. quarters, said Dariusz Kowalczyk, director of the bank. Research Asia, ex-Japan. He expects the currency to be at 74 per dollar by the end of the year, down from 74.59 at Wednesday’s close.
Rising imports against the backdrop of resuming economic growth in India and rising commodity prices threaten to bring the country’s current account to a deficit and could boost demand for the greenback. Still, increased foreign capital inflows and the prospect of a Reserve Bank of India move to control inflation could help control the volatility of the rupee.
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“The rise in oil prices is certainly negative for the current account,” said Hong Kong-based Kowalczyk, who had the most accurate rupee estimates last quarter in Bloomberg’s rankings. “However, by increasing inflation, they can make the RBI more hawkish, which will support the rupee. Overall, the RBI is likely to step in to oppose the strength of the INR and smooth its volatility. “
With crude oil prices trading near a three-year high and inflation remaining above the central bank’s comfort zone, investors want the RBI to signal some loosening of its accommodative policies during next month’s policy review.
The “current account deficit has widened again, but foreign direct investment is expected to remain strong,” Kowalczyk said. “Portfolio investments should also be positive.”
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