Informist, Thursday, Jul 21, 2022
–Banking source: Apr-Jun GDP growth may exceed RBI projections
–RBI believes CAD modest despite headwinds
–RBI data shows external debt to GDP ratio falling
–RBI holds sufficient FX reserves
–RBI believes CPI has peaked, will plateau from here
–RBI comfortable with rupee achieving fair value
–RBI concerned only about volatility in FX market
–India rupee performing better vs global peers
By T. Bijoy Idicheriah
MUMBAI – The strong fundamentals of the Indian economy, as reflected in peaking inflation and robust Apr-Jun growth, will enable the rupee to find its fair value soon, a banking industry source told Informist.
“The GDP growth is expected to outdo the Reserve Bank of India’s projections in Apr-Jun. Inflation has peaked and now plateaued,” the source said, pointing out that even large economies are facing the risk of recession.
“These are the fundamentals that are driving the rupee and it is gradually approaching fair value, which the RBI is comfortable with. It is only uncomfortable with volatility.”
As per the latest projections from the RBI, India’s real GDP growth is pegged at 7.2% for 2022-23 (Apr-Mar), with Apr-Jun GDP estimated at 16.2%. However, GDP is expected to then be at 6.2% in Jul-Sep, 4.1% in Oct-Dec and 4.0% in Jan-Mar.
The source said that the decline in the level of the rupee to an all-time low or 80/$1 on Tuesday was reflective more of global risk aversion and preference for the dollar rather than concerns over the strength of the Indian economy. The Indian currency has performed better against the dollar when compared to emerging market peers, the source said.
On Tuesday, the rupee breached the psychologically-crucial level of 80 per dollar for the first time ever as foreign portfolio outflows continue amid fears of a global recession. At 1357 IST, the Indian currency was at 79.96 per a dollar.
Apart from growth and GDP, the source said that despite global headwinds, the external sector and foreign currency reserves remain a support for the rupee.
“India’s current account deficit is still modest despite global headwinds. The external debt to GDP ratio is declining. Even at $580 bln, the RBI holds sufficient reserves, along with forward asset stock,” the source said.
India’s foreign exchange reserves stood at $580.25 bln as on Jul 8, down around $61.77 bln from the peak in October. End
Edited by Aditya Sakorkar
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