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The Indian rupee (INR) is set to continue trading sideways in the short-term as the central bank intervenes to maintain stability in the currency, said Fitch Solutions in a report Monday.
The Indian rupee has traded sideways since March 2021 and has averaged INR73.30/USD in the 2021 year to-date, the report said.
“We expect the rupee to continue trading in a range between INR72.30/USD and INR75.00/USD over the remainder of the year and forecast the unit to average INR73.50/USD in 2021.”
Fitch Solutions said the central bank, Reserve Bank of India, is expected to continue intervening to maintain relative rupee stability in order to manage imported inflation arising from high global oil prices. “This will mitigate the depreciatory pressures from loose monetary and fiscal policy in India, as well as a worsening terms of trade stemming from elevated global oil prices.”
Weaker INR in long term
However, the currency could turn softer over a longer term. The report forecasts the Indian rupee to average INR73.50/USD in 2021, and INR75.50/ USD in 2022.
“Over the long term, we believe that a central bank preference for a weaker rupee to support the export sector, higher structural inflation in India relative to the US as well as a high and sustained global oil prices will place depreciatory pressure on the rupee.”
For Indian expatriates in the UAE, the rupee was trading at INR19.93/AED on Monday, at the time of writing.
(Writing by Brinda Darasha; editing by Seban Scaria)
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