Rupee set to rebound from near record low

FILE PHOTO: A police officer walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, April 6, 2023. REUTERS/Francis Mascarenhas/File Photo

NEW DELHI: India’s rupee is set to bounce back from near an all-time low as the central bank slows its dollar purchases, according to Citigroup Inc.

The currency may recover to as strong as 80 per US dollar (RM4.598) as easing crude prices and rising service exports help narrow the nation’s current account deficit, said Aditya Bagree, head of markets for India and South Asia at the bank in Mumbai.

“We are constructive on the rupee in the short term,” said Bagree, who has spent over a decade at Citibank, speaking in an interview last week in his Mumbai office.

“There are almost 11 months of import cover, and hence from here, the Reserve Bank of India (RBI) may slow the pace of accumulation.”

India’s currency has weakened about 0.9% this month to trade at 82.57 per dollar yesterday, as the prospect of higher US interest rates boosted the dollar. That puts the rupee less than 1% away from its all-time low of 83.2912 set in October.

One reason that has kept the rupee under pressure has been the RBI’s steady accumulation of dollars.

The central bank boosted its foreign exchange stockpile to US$600bil (RM2.76 trillion) by the middle of May, according to the latest central bank data, up from a low of US$525mil (RM2.4bil) in October.

The rupee hasn’t been alone in weakening versus the greenback. All but two of the 12 Asian currencies tracked by Bloomberg have dropped against the dollar over the past 12 months.

India’s current account deficit is expected to narrow to about 1.4% of the nation’s gross domestic product in the financial year ending March 31, Citibank’s Bagree said.

That compares with an expected shortfall of 2.2% for the previous financial year, based on a Bloomberg survey of economists.

India’s services exports, meanwhile, climbed to US$323bil (RM1.5 trillion) in the financial year ended March, up 27% from a year earlier, central bank data showed.

The RBI’s decision to build up its forex reserves is also positive for the rupee over the longer term, as it will help ensure the local currency is less volatile than many of its peers, Bagree said. — Bloomberg

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