INR is Asia's worst performer amid RBI's $84B repayments
What's the story
The Indian rupee (INR) is the worst-performing currency in emerging Asia this quarter.
Analysts expect it to continue lagging its peers as the Reserve Bank of India (RBI) grapples with near-record dollar repayments.
The RBI's net short forwards position, a measure of future dollar sales commitments, indicates these repayments have hit a high of $84.3 billion as of March.
Currency forecast
Dollar repayments may weaken rupee further
The high dollar repayments could force the RBI to buy dollars, further putting pressure on its reserves.
This could lead to a depreciation of the rupee to as low as ₹86.50 per dollar by end-December, according to IDFC First Bank Ltd.
Commerzbank AG also expects the currency to weaken further to 87.50 against the US dollar from Friday's rate of ₹85.5813.
Strategic approach
RBI's strategy amid repayments
Barclays Bank Plc strategists, including Mitul Kotecha, expect the rupee to "underperform even as the dollar remains under pressure."
They anticipate that the RBI will focus on replenishing its foreign exchange buffers while letting its forwards book run off.
Gaura Sen Gupta, chief economist at IDFC First Bank, also believes that the RBI will avoid maintaining a large book due to its potential drain on reserves.
Reserve status
Short dollar book and foreign-exchange reserves
The RBI's short dollar book for up to three months is around $24 billion, while the three-month to one-year bucket stands at $40 billion.
If these payments aren't rolled over, they could deplete reserves.
India's foreign-exchange reserves were about $693 billion on May 23, down from a record high of $705 billion in September last year.
Market expectations
RBI's intervention and future policy
Despite the challenges, the RBI has been less interventionist in recent months.
Vikas Jain, head of India fixed income, currencies, and commodities trading at Bank of America, says the authority may only intervene at extreme ends of the ₹84-87 range.
Traders are now looking forward to an RBI policy announcement on June 6, where an interest rate cut by a quarter point is expected.