Rupee May Eventually Touch 63.50/$, Says DBS India
For DBS India, there are only three things that could derail the rupee rally.
Indian rupee touched a 20-month high, as local equity benchmarks scaled record highs on easing geopolitical concerns and rising earnings optimism.
“The return of the risk-on sentiment after the first round of French election has been a major trigger for the rupee’s rally,” Arvind Narayanan, executive director and head (sales treasury and markets) at DBS India told BloombergQuint on a phone conversation.
The rupee gained 0.5 percent to 63.93 against the dollar on Wednesday, a level last seen on August 10, 2015. In fact, the currency’s near 6 percent advance in the three months through Tuesday is the biggest in Asia.
The rupee may continue to strengthen to touch 63.80 and then 63.50 against the dollar, but the pace of appreciation may slow down, said Narayanan. “The RBI may intervene if there is a feeling that the local currency has run ahead of its peers,” he said.
The rupee’s surge, uninterrupted by any big intervention from the Reserve Bank of India (RBI) has prompted analysts to say that policymakers are growing more tolerant of the gains.
“With U.S. making comments about countries being currency manipulators and looking at that a lot more closely, I don’t think any central bank would want to be seen actively intervening in the currency markets,” he said.
For Narayanan, there are only three things that could derail the rupee rally.
1) Crude oil prices
2) U.S. Federal Reserve increasing its pace of rate hikes
3) Geopolitical concerns
“Anything on that front could rattle the emerging markets and lead to money going out,” he said.
Going forward, Narayanan said it would be prudent to watch for cues on liquidity and monsoon. “My sense is rate cuts are probably over. We have entered a cycle of prolonged pause and if need be a rate hike towards the end of the year,” he said.
He expects the yield on 10-year bonds to move towards 7-7.10 percent.