Rupee bear StanChart now sees it rising to highest since August

Standard Chartered plc. , which was among the most bearish forecasters for Indian rupees Over the past two years, he has become more bullish on the currency amid the country’s improving trade deficit and the dollar’s decline.

The British lender now sees the base case for the rupee at 81 per dollar by the end of 2023, Parul Mittal Sinha, head of financial markets for India, said in an interview, but says the currency could easily rise even to 79 levels. That would be the highest level since August, and mean a gain of more than 3 percent from current levels.

“Balance of payments behavior has started to improve as the trade deficit for January showed a good decline from previous months,” Sinha said, adding that she expects dollar weakness in the medium term as focus shifts to fears of slowing growth in the US and the Federal Reserve rate. Cuts even as the dollar remains sensitive to the re-pricing of US interest rate hikes and risk aversion in the near term.

What do the latest GDP data tell us about India’s macroeconomic numbers?
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The rupiah went from being the worst performing currency in emerging Asia last year to being the third so far in 2023 after the Indonesian rupiah and the Philippine peso. The country’s trade deficit narrowed sharply in January, fueling expectations that the current account gap will widen less than previously estimated.

“If we continue to see positive news on services export growth, commodity price correction and dollar index not appreciating, then the rupee looks very well positioned,” said Mittal of Stanchart.

Mittal’s latest forecast comes after it rightly predicted a decline in the Indian rupee in 2021 and a fall of the currency to 82 against the dollar last year. StanChart was not alone in turning bullish on the rupee, BofA Securities Inc, Citigroup Inc. Recently more gains for the currency.

RBI risks

However, the risk from a bullish view of the rupee stems from the possibility of Reserve Bank of India Buying the dollar is about 81 levels to rebuild its reserves, which it used to defend the currency last year, according to Mittal.

Foreign exchange reserves in India It fell for most of 2022 as the central bank intervened to protect the rupee, which slipped to above 83 against a dollar in October. Reserves in Asia’s third-largest economy began to increase again later in 2022 as major currencies strengthened against the dollar. Foreign currency stocks hit a five-month high in January.

“If the Reserve Bank of India stays away from buying, the dollar/rupee could fall very sharply,” Sinha said. She said the only reason the rupee is gradually appreciating is because the Reserve Bank of India is rebuilding its reserves.