Rupee set to hold ground against greenback till Dec

After depreciating 0.32 per cent against the dollar in October so far, the rupee is expected to hold ground against the greenback in the current quarter on the back of robust inflows.

According to the median of a Business Standard poll of 10 respondents, the rupee is seen trading around 84 per dollar till the end of December.

“In India’s case, at least the bond and cash related inflows will continue.

"It balances out the other factors and the current account remains fairly benign in our view.

"We believe the current account is less than 1 per cent of the GDP.

"Our estimate is 0.8 per cent of GDP. We believe these factors are structurally positive for the rupees, despite certain near-term headwinds,” said Sameer Narang, head of economics research at ICICI Bank.

The  RBI’s timely intervention has ensured that the depreciation of the currency is gradual.

The rupee, which hit 84.09 on Friday – a level defended by the central bank for almost two months.

However, the geo-political tensions pose a downside risk to the Indian unit. Brent crude climbed to $79.18 per barrel, marking its second consecutive weekly gain.

The rise was fuelled by the heightened supply risks from the ongoing conflict and concerns about the potential strikes on Iran’s oil facilities.

Also, China’s stimulus measures and the subsequent rebound in its stock markets are seen weighing on capital flows in India.

“We see that the balance of payment surplus is likely to pick up in the second half.

"Because post the US Fed rate cut, we’ll have a pickup in capital flows, the FDI, right now we are having some pressure because of the geopolitical risks.

"The other factor that helps is the RBI intervention, aiming to reduce volatility.

"We have more than adequate foreign exchange reserves and the rate-cutting cycle in India will be relatively slower compared to the US,” said Gaurav Sen Gupta, chief economist at IDFC First Bank.

A segment of the market believes that the local currency might depreciate further to 84.25 per dollar in the current quarter as the rupee may weaken on strong demand of the greenback from importers.

“Importers are still uncovered to quite an extent, and exporters are covered because RBI was selling at 84 levels, 83.99 levels.

"So, exporters were covered.  So, most importers will now panic and buy.

"It will take the dollar to be higher.  But the RBI will obviously keep a tab. So, it will be a slow one,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

Record foreign exchange reserves, which are over $700 billion, also acts as a buffer against volatility.

RBI has accumulated around $78 billion in this year so far, only second after China among the major foreign exchange reserves holding countries.