Kotak Mahindra Bank on Friday said the RBI may slow down its intervention during October-March to protect the rupee and allow the currency to align with global trends.
Traders said the rupee fell to a record low of 81.2250 against the dollar on Friday, prompting the RBI to sell the dollar to boost the currency.
“We expect the INR to remain under pressure as the market (US) continues to assess the extent of spill-over from the Fed’s tough policy stance,” Upasana Bhardwaj, senior economist at Kotak, said in a note.
For several months, the RBI has made repeated moves to support the rupee, as the US Federal Reserve’s aggressive rate hikes dampened demand for non-dollar currencies.
According to the central bank’s monthly bulletin, in July alone, the RBI sold $19 billion.
With its intervention in the spot market, the central bank’s forward dollar holdings fell from $64 billion in April to $22 billion.
“We expect the RBI to become more prudent in the 2H FY23 interventions in the FX market,” Ms. Bhardwaj said.
Foreign exchange reserves have fallen from a peak of about $ 642 billion to $ 550 billion.
Ms Bhardwaj said the FX buffer was sufficient to shield the economy from any major external shocks, and the RBI may opt for “restricted FX interventions”.
India’s inclusion in global bond indices may push the currency above 79 per dollar temporarily, but Bhardwaj believes it will be temporary, as the RBI seeks to rebuild the FX buffer and further over-valuation of the currency. wants to stop.
He expects the rupee to trade at Rs 79-83 per dollar for the rest of the current financial year.