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RBI may let Rupee weaken in next 2 quarters: Kotak Bank

RBI may let Rupee weaken in next 2 quarters: Kotak Bank

The rupee fell to a record low of 81.2250 against the dollar on Friday.

MUMBAI:

The RBI could slow down its intervention to protect the rupee during October-March and allow the currency to move in line with the global trend, Kotak Mahindra Bank said on Friday.

The rupee fell to a record low of 81.2250 against the dollar on Friday, prompting the RBI to sell dollars to support the currency, traders said.

Upasna Bhardwaj, senior economist at Kotak, said: “We expect the INR to continue to come under pressure as markets continue to gauge the extent of spillover from the Fed’s (US) tough policy stance. “.

For several months, the RBI has frequently intervened to support the rupee, as the US Federal Reserve aggressively raised interest rates reducing demand for non-dollar currencies.

In July alone, RBI sold $19 billion, according to the central bank’s monthly newsletter.

Along with its intervention in the spot market, the central bank’s dollar futures holdings fell to $22 billion from $64 billion in April.

“We expect the RBI to become more cautious in the second half of FY23, while also intervening in the foreign exchange market,” Ms. Bhardwaj said.

Foreign exchange reserves have fallen to nearly $550 billion from a peak of nearly $642 billion.

The FX buffer is sufficient to insulate the economy against any major external shocks, and the RBI has the option of “limited foreign exchange intervention”, Ms. Bhardwaj said.

India’s inclusion in global bond indexes could push the currency temporarily higher to 79 per dollar, but Bhardwaj thinks that will only be temporary, as the RBI wants to rebuild its forex buffers and prevent overvaluation of this currency.

She expects rupees to trade in a range of 79-83 rupees per dollar for the rest of the current financial year.

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