Informist, Tuesday, Dec 14, 2021
NEW DELHI – The Reserve Bank of India may allow the rupee to weaken to 77.00/$1 level in mid-2022 and might not spend its foreign exchange reserves to offset a temporary spike in the greenback ahead of possible interest rate hikes by the US Federal Reserve around that time, broking firm CLSA said in a report.
CLSA Chief Economist Eric Fishwick expects the Fed to hike interest rates by 75 basis points in the first half of 2022, and sees the dollar jumping to 1.07 against the euro.
“The rupee should then return to our 73-76.50/$1 range after the US dollar sell off on news of Fed tightening,” the report said. “It (RBI) will not want to waste precious FX reserves on a temporary US dollar move.”
The two-day meeting of the Federal Open Market Committee will conclude on Wednesday. Market participants expect the US central bank to speed up tapering of its bond purchases.
“We think neither the RBI nor the forex market will panic if the rupee weakens on US dollar rising before Fed tightening,” the report said.
“The RBI’s FX reserves, at $690 bln (including forwards) are well above India’s $600 bln adequacy estimate. As a result, the RBI can easily sell $50 bln to ward off any speculative attack on the rupee.”
The firm believes that in case stronger-than-expected US growth leads to more hikes by the Fed, risk-on sentiment would drive foreign fund flows to emerging markets and support the rupee.
CLSA continues to expect the rupee to outperform currencies of Brazil, Russia, China and South Africa, and will trade in 73.00-76.50/$1 range barring June 2022, when dollar expected to spike before Fed hikes. End
US$1 = 75.87 rupees
Reported by Pratiksha
Edited by Aditya Sakorkar
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Source: Cogencis
