French lender's India treasurer pegs Indian rupee floor near 'fair value' of 96 per dollar
- The Reserve Bank of India unveiled a series of measures in early June to attract dollar flows, which have drawn about $41 billion through the end of July
MUMBAI: The Indian rupee is unlikely to breach 96 per dollar this financial year, with measures to attract dollar flows and falling commodity prices helping contain downside risks, according to Crédit Agricole CIB India’s treasury head.
The French lender’s models peg the rupee’s fair value at 96 per U.S. dollar, and it expects the currency to trade in a 94-96 range this financial year.
The local currency ended at 95.30 against the dollar on Monday.
“After a sharp move, upside risks (to USD/INR) now seem more contained than before, largely on account of the measures undertaken by the central bank and the government to attract capital flows and some easing of commodity prices,” Vishal Kaushal, head of global markets, India, Crédit Agricole CIB, told Reuters on Monday.
The Reserve Bank of India unveiled a series of measures in early June to attract dollar flows, which have drawn about $41 billion through the end of July, according to data from RBI.
The government complemented that in June with tax breaks for foreign investors buying Indian debt, helping revive overseas inflows into local bonds. The measure has attracted about $7 billion till now, according to clearing house data.
There are also tentative signs of foreign investors returning to equities, encouraged by improved confidence in the currency outlook.
They bought Indian equities worth nearly $3.5 billion in July and so far in August on a net basis, after pulling out more than $29 billion in the first six months of the calendar year.
“The recent measures by RBI and government have yielded good results and should augur well for rupee stability and limit excessive volatility in the near term, even if faced with another uptick in commodity prices,” Kaushal said.
Meanwhile, the banker sees limited room for India bonds to rise further, with the 10-year yield likely finding a floor around 6.70%. Yield on the benchmark was around 6.76% on Monday.
“Given the recent rally in bond yields on account of lower crude and improving liquidity conditions followed by the rate pause, it seems prudent to wait for better levels to add duration,” Kaushal said.
He expects the central bank to keep policy rate near the lower end of its neutral range till core inflation stays benign.
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