French lender's India treasurer pegs Indian rupee floor near 'fair value' of 96 per dollar
MUMBAI: The Indian rupee is unlikely to breach 96 per dollar this financial year, with measures to attract dollar flows and falling commodity prices helping contain downside risks, according to Crédit Agricole CIB India’s treasury head. The French lender’s models peg the rupee’s fair value at 96 per U.S. dollar, and it expects the currency to trade in a 94-96 range this financial year. The local…
The Indian rupee is not expected to fall below 96 Indian rupees per U.S. dollar this financial year, according to Crédit Agricole CIB India's treasury head, Vishal Kaushal. The French bank's models estimate the fair value of the rupee to be 96 per dollar, and they anticipate the currency to fluctuate within the 94-96 range during this financial year. On Monday, the Indian rupee closed at 95.30 against the U.S. dollar.
Kaushal noted that the recent measures implemented by the Reserve Bank of India (RBI) and the government to attract capital flows have been effective in containing downside risks to the rupee. These measures, announced in early June, have drawn approximately $41 billion in dollar inflows through the end of July. The government further bolstered these efforts in June by offering tax breaks for foreign investors purchasing Indian debt, resulting in about $7 billion in inflows up to that point.
Moreover, there are early indications of foreign investors beginning to return to Indian equities, driven by improved confidence in the currency outlook. They invested nearly $3.5 billion in Indian equities during July and August, following a significant outflow of over $29 billion during the first six months of the year. Kaushal believes that the recent RBI and government measures have proven successful and should contribute to rupee stability and limit excessive volatility in the near term, even if commodity prices rise further.
However, Kaushal also highlights limited room for Indian bonds to appreciate further, with the 10-year yield likely to find support around 6.70%. Currently, the yield on the benchmark is around 6.76%. Kaushal advises investors to wait for more favorable levels to add duration due to the recent rally in bond yields, fueled by lower crude prices and improving liquidity conditions, as well as the recent rate pause.
The central bank is expected to maintain its policy rate near the lower end of the neutral range until core inflation remains stable.
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