As stated by Fitch Ratings, the inflow of substantial foreign funds in Indian bonds can instigate the rupee to rebound from an all-time debasement, as has been reported. Nevertheless, RBI will be expected to counter quite an extent to arrest appreciation.
Looking at the exchange rate forecasts, Jeremy Zook, a Fitch director in Hong Kong, predicts the rupee will be valued at 82 per dollar by the end of the year, while the rate at present is approximately 83.50. As for him, RBI, the regulating authority, might voluntarily step in to suppress sharp currency swings through the absorption of the inflows.
India’s bond market can attract more foreign capital inflows provided that it joins JPMorgan Chase & Co.’s emerging market index, which was launched in June. The market might receive up to $30 billion of additional capital. The increase in these flows will be the catalyst for evaluating the RBI’s effectiveness in managing the upturns and stability of the national export competitiveness.
Despite hitting a record low of 83.58 against the dollar in April, the rupee has performed relatively well compared to other emerging Asian currencies this year, attracting investor interest. Zook highlights India’s favorable position with bond index inclusion and anticipated flows in the latter part of the year, noting the RBI’s significant external reserves and modest current account deficit.
Fitch’s rupee projection is to the contrary of the median of 83 per dollar according to Bloomberg’s survey. Causes like the reduction in the trade deficit or the apparent absence of negative effects coming from the region’s crisis around crude oil work positively for the currency.
By accumulating the world’s second-largest foreign exchange reserve to manage the exchange rate risk comes among various strategies used by the RBI to mitigate the risk factors of large capital inflows. Not only this, the articipated retaining of the Narendra Modi government in power during the ongoing national elections also contribute to the movement of capital to the country.
Check here for the latest updates in Hindi!