(Reuters) Despite a recent recovery, India’s rupee will trade near its historic low in the coming three months, a Reuters poll of foreign exchange analysts found.
After a month of trading near 80.065 per dollar, the rupee strengthened to 78.490 on Tuesday, relieving the Reserve Bank of India, which was burning through foreign currency reserves defending 80 per dollar.
The revival won’t last. A Reuters survey of 40 analysts projected it to trade at an all-time low by October.
In July, 18 of 40 economists predicted that the partially convertible rupee would reach 80 per dollar in three months, up from 30 percent.Most expected a new low.
16 analysts who answered an extra question predicted a rupee low of 80.50/$ over the next three months, with a range of 79.75-81.80/$.
Much depends on the RBI’s interest rate decision. In a second Reuters poll, it was projected to hike the repo rate by at least 35 basis points on Friday. [RBI/INT]
HDFC Bank economist Sakshi Gupta said the focus is on whether the Fed raises rates for a third time in September.
“The RBI won’t be as aggressive…depressing the rupee,” she added.
India’s central bank, which only started raising rates in May, has only 110 basis points left to give.
Gupta said U.S.-China tensions boosted the safe-haven dollar.
She said this shows the recent gain is short-lived and the rupee might exceed 80.
Because of expectations that the Fed would deliver fewer rate hikes and the recent slump in commodity prices, not everyone was confident that the rupee would fall.
“The RBI may need to defend the rupee less in the next few months than it has this year,” says Shilan Shah, senior India economist at Capital Economics. He says most of the dollar’s surge is done and commodities prices will decline in coming months.
The currency is anticipated to recover to 78.83 per dollar by the end of July 2019.
(For more Reuters polls from August:)