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Indian rupee expected to appreciate modestly this year, supported by ongoing RBI intervention: Reuters survey

Indian Rupee to Gain Slightly Against US Dollar: Reuters Poll

Indian Rupee Expected to Appreciate Marginally

The Indian rupee is anticipated to remain within a narrow range and experience a slight increase against the U.S. dollar over the next year. This projection comes despite the strong economy and continued intervention by the Reserve Bank of India in the currency markets, as per a Reuters poll.

Factors Influencing Rupee Movement

Since the beginning of the year, the rupee has only seen a 0.2% gain against the greenback. This modest growth is attributed to the diminishing prospects of an early rate cut by the U.S. Federal Reserve, which has bolstered the dollar.

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Forecasts and Expectations

Analysts participating in the Feb. 2-6 Reuters poll predict a slight strengthening of the Indian currency, with rates of 83.00 in a month and 82.84 in three months, compared to the current rate of 83.05 against the dollar.

Long-Term Outlook

Although the rupee has performed better than its Asian counterparts this year, it is expected that currencies such as the yuan, Thai baht, and Korean won will outperform the Indian rupee by 2025.

Expert Opinions

Dhiraj Nim, a forex strategist at ANZ, notes that in the near term, the rupee is likely to continue trading within a tight range with a slight upward bias. However, over the longer horizon, a supportive balance of payments and a potential softening in the dollar could pave the way for modest appreciation.

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Market Dynamics and Impact

The Reserve Bank of India’s intervention, coupled with the delayed shift in the dollar’s dominance over other currencies, has led to the expectation that the rupee’s relative strength will persist. Additionally, expectations of sustained economic growth in India are likely to provide further support.

Market Fluctuations and Reserve Usage

Despite the positive outlook, gains in the rupee are anticipated to be limited, with the RBI expected to continue utilizing its foreign exchange reserves, currently around $616.7 billion, to mitigate volatility.

Market Projections and Inflows

Forecasts indicate that the rupee is projected to gain over 0.6% to 82.50 against the dollar in six months and 0.8% to 82.40 in a year. This comes as India’s bond markets have seen substantial inflows from foreign investors, aided by JPMorgan’s decision to include the debt in its indexes.

Market Expectations and Foreign Flows

Aditya Sharma, an emerging markets strategist at Natwest Markets, highlights that India’s inclusion in JPMorgan’s GBI-EM index, coupled with the RBI’s focus on suppressing volatility from broader USD moves, points to a continuation of portfolio flows into the country.

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