By Dharamraj Dhutia
MUMBAI, Aug 10 (Reuters) – The Indian rupee is projected to avoid falling below 96 per dollar during the current financial year. This optimistic outlook comes from Crédit Agricole CIB India’s treasury head, who attributes it to government and central bank initiatives designed to attract dollar flows, alongside a decline in global commodity prices.
Crédit Agricole CIB’s internal models suggest a fair value for the rupee at 96 per U.S. dollar, with expectations for the currency to trade within a 94-96 range for the financial year. As of Monday, the local currency closed at 95.30 against the dollar.
Vishal Kaushal, head of global markets for India at Crédit Agricole CIB, told Reuters on Monday that “after a sharp move, upside risks (to USD/INR) now seem more contained than before, largely on account of the measures undertaken by the central bank and the government to attract capital flows and some easing of commodity prices.”
In early June, the Reserve Bank of India implemented several measures to draw in dollar flows, which have successfully attracted approximately $41 billion by the end of July, according to RBI data. Complementing these efforts, the government introduced tax breaks for foreign investors purchasing Indian debt in June. This policy has spurred overseas inflows into local bonds, amounting to around $7 billion to date, according to clearing house data.
There are also preliminary indications of foreign investors returning to Indian equities, driven by renewed confidence in the currency’s stability. After withdrawing over $29 billion in the first six months of the calendar year, foreign investors purchased nearly $3.5 billion worth of Indian equities on a net basis in July and so far in August.
Kaushal emphasized the effectiveness of these recent interventions, stating, “The recent measures by RBI and government have yielded good results and should augur well for rupee stability and limit excessive volatility in the near term, even if faced with another uptick in commodity prices.”
Meanwhile, Kaushal sees limited upside for Indian bonds, with the 10-year yield likely to find a floor around 6.70%. The benchmark yield stood at approximately 6.76% on Monday. He advised investors to “wait for better levels to add duration,” given the recent rally in bond yields, which has been influenced by lower crude prices, improved liquidity conditions, and a pause in rate hikes.
Kaushal anticipates that the central bank will maintain its policy rate near the lower end of its neutral range, provided that core inflation remains subdued.
(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)
