Indian rupee likely to miss emerging markets rally fuelled by Fed policy change
MUMBAI, Aug 26 (Reuters) – A U.S. interest rate cut expected next month is unlikely to help India’s overvalued rupee even as its emerging market counterparts gain, bankers say.
This move was in line with the recent underperformance of the rupee as the currency failed to benefit from the overall weakness of the dollar.
Meanwhile, comparable currencies, the Brazilian real, Thai baht, Indonesian rupiah and Malaysian ringgit, rose by about 5%.
India’s central bank is likely to welcome the underperformance as the rupee’s real effective exchange rate (REER) – a measure of its competitiveness – rose to a nearly seven-year high last month.
The rupee’s 40-currency REER stood at 107.3 in July, signaling that the rupee was overvalued by about 7%, according to the Reserve Bank of India’s latest monthly bulletin.
Due to overvaluation, the Reserve Bank of India is likely to prevent a significant appreciation in the rupee exchange rate.
“Despite the overall weakness of the US dollar, the Reserve Bank of India is keeping the currency stable. In our view, this provides an opportunity for a decline in the real exchange rate,” said Akshay Kumar, head of global markets at BNP Paribas India.
“From the perspective of policymakers, the higher (REER) value would pose a risk to India’s export competitiveness,” said a statement from private lender HDFC Bank.
The rupee has lost 0.7 percent this year and was trading at 83.88 to the US dollar at 2:00 p.m. IST.
There is “little chance” of the rupee rising above 83.50, said a senior trader at a state-run bank.
The RBI bought dollars near that level in July and is likely to do so again, he said.
According to a Reuters poll, analysts maintained their negative forecast for the rupee, even as bullish bets on most Asian currencies increased in August.
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Reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala
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