RBI intervention may be needed to maintain stability in the value of Indian rupee in case US Fed raised interest rate by expected 25 basis points, according to analysts.
RBI intervention may be needed to maintain stability in the value of Indian rupee in case US Fed raised interest rate by expected 25 basis points, according to analysts.
“We expect the Fed to raise rates by 25 basis points on December 16. In response, the RBI should sell FX to contain Rupee volatility, if any,” said Bank of America Merrill Lynch in a report. It said that RBI could sell upto $20 billion to check volatility in currency markets.
India Ratings said that there could be volatility in the short term in Indian Rupee depending on the stance articulated by the Fed on rates’ trajectory. “The RBI intervention in both forward and future markets could smoothen the rid,” said the India Ratings report.
Bank of America Merrill Lynch report said that it expects RBI to defend position of '65 against the dollar. “As RBI Governor sees '62-64/US dollar as fair value. At the same time, it will allow temporary breaches — such as now — as it will not want to waste too much of precious forex reserves at a time of such global uncertainty when the Rupee has already consistently outperformed emerging market peers,” said the report. It said that RBI has sufficient import cover of about 10-months, on account of falling oil prices.
However, it said that US recovery is positive for India in the medium term even though markets may initially sell emerging markets around the first Fed rate hike.
