Rupee to trade in tight range as RBI keeps intervening

The Indian rupee will trade in a tight range over the coming months as the Reserve Bank of India continues to intervene in the market to shield the currency against a strong U.S. dollar, according to a Reuters poll of FX analysts.

Although most emerging market currencies have taken a hit over the past months as the "higher-for-longer" rates narrative pushed U.S. yields to multi-year highs, the rupee has barely moved over the same period and is down less than 1 per cent this year.

Still, the rupee has been trading close to its record low of 83.29 to the dollar as traders bet against Asian currencies.

Median forecasts in the Oct. 2-4 poll of 46 strategists showed the rupee would gain only modestly and trade around 83.00/dollar in one and three months, from about 83.24/dollar on Wednesday.

Those were weaker than 82.88/$ and 82.75/$ predicted for one- and three-month periods, respectively, in September.

"It (the rupee) clearly is not freely floating, and I would be very surprised if this is not being heavily managed in this tight range by the RBI – it has little, if anything, to do with fundamentals," said Robert Carnell, regional head of research, Asia Pacific at ING.

"The USD higher-for-longer narrative has been gaining ground and so the outlook for all FX versus the USD is looking a little weaker."

The RBI's foreign exchange reserves (INFXR=ECI) fell to a four-month low of $590.7 billion as of Sept. 22, according to the central bank.

That may deplete further in coming months as a sharp rise in the price of oil - the country's biggest import - could put further pressure on the currency. Oil prices surged nearly 30 per cent last quarter, nearing $98 last week.

Indeed, over 60 per cent of analysts, 29 of 46, expect the rupee to see a new record low within a year.

"USD/INR could remain in a tight range in the near-term given dollar strength and volatile crude, but could modestly appreciate over 12 months as (balance of payments) fundamentals improve and the U.S. dollar subsides," said Dhiraj Nim, FX strategist at ANZ.

The rupee was forecast to gain less than 1 per cent to 82.50/dollar in a year.