Can INR strengthen to 95/$ in coming months?
What's the story
The Indian rupee could appreciate against the US dollar in the coming months, according to Anindya Banerjee, Head of Research-Currency, Commodity, and Interest Rate Derivatives at Kotak Securities. He said if Brent crude remains below $100 per barrel and foreign inflows continue, the rupee could strengthen to 95/$ over the coming months.
Future prospects
Banerjee hints at more aggressive rupee appreciation scenario
Banerjee also hinted at a more aggressive scenario where the rupee could appreciate further to 93/$ if the Reserve Bank of India (RBI) allows Foreign Currency Non-Resident (Bank) (FCNR(B)) inflows to fully reach the spot market.
He noted that FCNR(B) deposit mobilization has already reached levels seen during 2013 and expects inflows to exceed earlier estimates.
Market dynamics
Factors contributing to rupee's strength
Banerjee pointed out that lower oil prices, foreign portfolio investment inflows, and FCNR(B) deposits are creating conditions for the rupee to appreciate.
He noted that foreign portfolio investors have already brought in around $4.5 billion during July.
Exporters have been delaying dollar conversions in anticipation of better exchange rates while importers have been increasing hedging activity.
Market volatility
Crude oil prices remain a risk to forecast
Despite the positive outlook for the rupee, Banerjee cautioned that crude oil prices remain a major risk to this forecast.
He said, "The wild card is the oil," highlighting its potential impact on currency fluctuations.
This underscores the complex interplay of global commodities and local currencies in determining exchange rates.