Informist Poll
Rupee seen unchanged at 87.50/$1 Mar-end; RBI's cushion to stay
This story was originally published at 19:49 IST on 3 March 2025
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By Pratiksha
NEW DELHI – The rupee is seen ending the month broadly unchanged from the current levels as dollar sales by the Reserve Bank of India is likely to keep the domestic currency from depreciating in the face of strong foreign portfolio outflows.
According to the median of estimates of 14 respondents from banks, brokerages and corporates polled by Informist, the Indian unit may settle at 87.50 a dollar by the end of March, unchanged from February-end. However, the estimates were in a wide range of 85.75-88.00 per dollar, depicting the uncertainty that lies ahead for the Indian currency.
"There is so much uncertainty in the rupee that it is difficult to predict it with any certainty. We had earlier expected dollar/rupee to consolidate below 87, but after it swung upward, it seems unlikely to come down in March," said Madan Sabnavis, chief economist, Bank of Baroda.
In line with the last two months' trend, foreign portfolio investors may continue to exit the Indian markets due to risk aversion amid looming uncertainty over US President Donald Trump's broader tariff hike plans and potentially fewer rate cuts in the US this year. Trump's proposal to impose reciprocal tariffs from early April on trading partners including India are expected to spur more foreign outflows, market participants said.
"Rising global uncertainty, driven by US President Trump's tariff threats, is putting pressure on emerging market currencies. Simultaneously, signs of recovery in the Chinese economy and its financial markets are attracting foreign investors, prompting them to sell Indian assets in favour of Chinese investments," said Amit Pabari, managing director at CR Forex. "Adding to the strain, the Bank of Japan's hawkish stance is fuelling fears of a reverse carry trade, leading to massive foreign institutional investor outflows."
After cutting rates by 100 basis points last year, the US Federal Open Market Committee applied brakes on its rate-cut cycle and opted to leave the federal funds target range unchanged at its January meeting. Market participants expect the FOMC to wait at least until June before cutting rates again as concerns over reigniting price pressures owing to Trump's policies loom.
So far in 2025, FPIs have pulled out over $10.60 billion from the Indian markets on a net basis.
Weakness in the Chinese yuan is also expected to be a pain point for the Indian unit as Trump continues to slap tariffs on the world's second-largest economy, according to poll respondents. The onshore Chinese yuan depreciated 1.3% against the dollar in February. During the weekend, Trump further threatened China with extra 10% duty, set to take effect on Tuesday, resulting in a cumulative 20% tariff on the country.
A source of comfort for the Indian unit will be the increase in dollar sales by exporters, who typically step up conversion of their foreign exchange-denominated earnings into rupees before closing their books for the financial year ending March, poll respondents said.
Market participants also expect the central bank to continue intervening through dollar sales to prevent the Indian unit from weakening sharply. Of the 14 poll respondents, none expect the Indian unit to fall below the psychologically-crucial level of 88-a dollar this month.
However, they expect the RBI to be less aggressive in its support for the local unit in order to prevent tge draining out of rupee liquidity from the banking system. The systemic liquidity has been in deficit since mid-December, with market participants attributing the tightness to the RBI's spot dollar sales in order to soften the rupee's depreciation. The net liquidity injected by the RBI--a proxy for systemic liquidity deficit--has averaged around INR 1.7 trillion last month.
"It looks like they (RBI) are focusing on the domestic liquidity and growth, which is still not enough to boost the economy. There could be some change in priority (by the RBI) that could bring volatility in the FX markets, and lead to unpredictability," said Dilip Parmar, currency analyst at HDFC Securities.
Going ahead, market participants expect the RBI to strike a balance when it comes to concerns over a persistent liquidity deficit and sharp rupee depreciation. What, however, is certain that the Indian currency is in for high volatility in both the cases.
POLL DETAILS
|
Participant |
Mar-end |
Jun-end |
|
Bank of Baroda |
87.00-88.00 |
-- |
|
CR Forex |
86.50-88.00 |
88.50-89.00 |
|
CSB Bank |
87.50 |
86.75 |
|
Finrex Treasury Advisors LLP |
86.75 |
88.00 |
|
HDFC Bank |
87.00-88.00 |
87.00-88.50 |
|
HDFC Securities |
87.80 |
88.50 |
|
ICBC |
87.00 |
-- |
|
IDFC FIRST Bank |
88.00 |
88.50 |
|
Karur Vysya Bank |
86.80-87.00 |
-- |
|
Large brokerage firm |
86.55-87.70 |
-- |
|
LKP Securities |
85.75-86.00 |
85.50-85.85 |
|
Mecklai Financial Services |
87.75 |
-- |
|
Private Bank |
87.60-87.85 |
-- |
| UCO Bank | 87.10 | -- |
|
Median |
87.50 |
88.00 |
End
US$1 = INR 87.37
Edited by Tanima Banerjee
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