Date: June 15, 2023
Place: New Delhi
SBI Mutual Fund, the most prominent asset manager in India, projects a bullish performance for the Indian rupee throughout the remaining half of 2023, thanks to the subsiding oil prices and reduced intervention from the central bank. Namrata Mittal, chief economist at SBI Mutual Fund, suggests the rupee could potentially surge to 80 per dollar by the year-end, marking its first yearly appreciation since 2017.
A significant drop in crude oil prices is enhancing India’s current account status. The country, which usually depends on inflows into its equity market to mitigate perennial deficits, has seen an improvement in its balance of payments. Furthermore, the surge in services exports, which has become an increasingly important factor in recent months, contributes to this improved economic outlook.
“The balance of payments, which was in a sharp deficit a few quarters ago, could be neutral thanks to a fall in commodity prices and services exports holding up well,” stated Mittal. In the past, the Reserve Bank of India (RBI) has often intervened to amass dollars to prevent a rapid appreciation in the rupee. However, according to Mittal, the central bank may find a gradual strengthening of the rupee more palatable.
Mittal explained that the RBI generally opposes drastic currency fluctuations. “RBI is not in favor of sharp movements,” she commented. “If there is sharp appreciation pressure, they will intervene.”
Her outlook aligns with predictions from other market analysts. For instance, Citigroup expects the rupee to recover from its historical lows as the RBI reduces its dollar acquisitions. Meanwhile, Bloomberg Intelligence forecasts the rupee to strengthen to slightly below 80 per dollar by March 2024.
The rupee has already shown signs of this predicted strengthening, with a 0.8% gain this year, making it one of the two Asian currencies that have appreciated against the US dollar. On Wednesday, the currency closed 0.3% stronger at 82.1062.
This trend bodes well for India’s economic recovery, but experts also highlight the importance of maintaining stability in these improvements to ensure sustainable growth in the longer term.”
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