Last Updated:
Abandoning its earlier policy of intervening only during periods of heightened volatility, the RBI over the past couple of years has used its vast forex reserves to keep the currency in a narrow range.
The latest data from the RBI’s monthly bulletin showed the rupee’s trade-weighted real effective exchange rate was 105.17 in September, implying the currency was overvalued by around 5%.
The Indian rupee will trade in a tight range around current levels against the dollar over the coming year as the Reserve Bank of India (RBI) routinely dips into its forex reserves to manage the currency’s stability, a Reuters poll found.
Abandoning its earlier policy of intervening only during periods of heightened volatility, the RBI over the past couple of years has used its vast FX reserves to keep the currency in a narrow range.
The US dollar has charged ahead of most other currencies in recent years but the rupee has stood its ground, losing just over 1% this year.
That resilience has come despite $11 billion of foreign portfolio investment leaving India in October. At the same time, the central bank drew its massive currency reserve pile from a peak of $704.89 billion in late September to $688.27 billion as of October 18.
“The (FX) intervention has been an ongoing affair and it’s not just this year, it’s been continuing post-COVID so we would expect two-sided interventions to continue,” said Vivek Kumar, an economist at QuantEco Research.
The currency was forecast to trade around 84/$ in one and three months, virtually unchanged from Tuesday’s close of 84.05/$, with a slight appreciation of around 0.5% to 83.75/$ in six months and 12 months, according to an Oct. 25-31 Reuters poll of 38 strategists.
In an early October poll the rupee was expected to strengthen mildly over the forecast horizon.
The latest data from the RBI’s monthly bulletin showed the rupee’s trade-weighted real effective exchange rate was 105.17 in September, implying the currency was overvalued by around 5%.
