RBI Maintains Stability in Rupee with Routine FX Interventions Amid Dollar’s Global Surge

RBI Maintains Stability in Rupee with Routine FX Interventions Amid Dollar’s Global Surge

The Indian rupee is projected to maintain a stable range against the U.S. dollar over the next year, supported by the Reserve Bank of India’s (RBI) continuous interventions in the foreign exchange market, a recent Reuters poll of 38 strategists reveals. Unlike its previous approach of intervening solely during periods of extreme volatility, the RBI has adopted a more consistent intervention strategy since the onset of the COVID-19 pandemic, leveraging its substantial foreign exchange reserves to manage fluctuations and keep the rupee’s movement in a narrow band.

Although the U.S. dollar has strengthened considerably against global currencies, the rupee has managed to stay relatively steady, depreciating just over 1% year-to-date. This resilience is noteworthy despite a large outflow of $11 billion in foreign portfolio investments from India in October. During this period, the RBI reduced its forex reserves from a peak of $704.89 billion in late September to $688.27 billion as of October 18, reflecting its commitment to stability amid fluctuating market dynamics.

Economists, including Vivek Kumar from QuantEco Research, note that the RBI’s interventions are not confined to this year alone but have continued consistently post-COVID to ensure controlled movements in the rupee’s value. According to the poll, the rupee is anticipated to trade around 84/$ in the near term, with only a slight appreciation to 83.75/$ over the next six to twelve months. This represents a marginal increase from the previous poll in early October, which had projected the rupee to appreciate modestly over the forecast period.

The RBI’s latest monthly bulletin further underscores the rupee’s positioning, with the trade-weighted real effective exchange rate (REER) reading 105.17 in September, indicating an approximate 5% overvaluation.