“The rupee will have to depreciate 2-3 per cent as a natural course, but till the elections, the RBI may want to keep it a little stronger,” said Abhishek Goenka, managing director and CEO of IFA Global, currency consultant.
Generally, the central bank intervenes when the rupee loses or appreciates sharply, but the central bank has been largely absent from the market in the last two days after the Election Commission announced the election dates. India’s foreign exchange reserve has again touched $400 billion, as the RBI bought dollars when the rupee appreciated.
Currency dealers say there is a positive sentiment prevalent in the market after election dates were announced. Besides, the voluntary retention route (VRR) announced for foreign portfolio investors (FPIs) in the debt market has also been received well by the players. The VRR cuts down mandatory holding period of bonds to one year, from the earlier three years. On Monday, when the VRR scheme started, FPIs poured in Rs 2,500 crore worth of their money in the bond market.
According to a bank treasurer, most of the money coming to India now is unhedged, as foreign investors are certain that rupee won’t move much and the corporate bond market offers high returns of 8.5 per cent. Also, this is a good time for the rupee to appreciate as the outlook for global rates is bearish. This is also reflecting in the domestic bond yields, which are not rising in anticipation of global soft rates, which should reflect in India as well.
“Fed dovishness is reflecting in dollar, euro is also very dovish, while oil prices are holding steady. This is a very good period for emerging market currencies to rally, and rupee can appreciate much more, only if the RBI lets it be,” said the bank treasurer without wanting to get quoted.
Goenka said he was advising his importer clients to buy dollars at the present level, while he was offering options to his exporter clients, but not necessarily forwards.
Goenka desn’t expect rupee to appreciate beyond 69.50 a dollar.