The rupee, which has gained more than 5% against the dollar since the beginning of the year, is seen appreciating further in near-term. The extent of the rupee’s strength, however, will largely depend on how much the Reserve Bank of India allows it to appreciate, treasurers say.
Traders said it is possible for the rupee to go as high as 63.80-75 against the greenback in the next one month on the back of robust foreign fund inflows. However, the Reserve Bank of India’s dollar purchases is likely to slow the pace of appreciation, they added.
A trader with private bank said if the rupee breaks the 63.80-75 level, it has the potential to climb as high as 63.25 against the dollar, but it would depend on the RBI’s interventions. “Given the kind of inflows that we are seeing in the pipeline, the rupee will most probably appreciate if the RBI allows it,” the trader added.
The principal reason for the RBI’s intervention in the foreign exchange market is to ease volatility and to prevent any sharp movement in the currency.
Foreign portfolio investors have bought Indian shares and bonds worth more than $17 billion so far in 2018. Since the beginning of the year, the rupee has gained from a low of 68.23 against the dollar to a high of 63.93. On Friday, the local currency closed at 64.44 against the greenback. In the previous two months, the local currency has moved in the 65.03-63.93 range.
According to the latest data available, the RBI bought $3.5 billion in the spot market on a net basis in March, while outstanding net forward sales stood at $10.8 billion during the month. The RBI publishes data on the sale and purchase of dollar with lag of two months.