Bloomberg
Mumbai


The top forecasters for India’s rupee see the central bank stepping up intervention to counter inflows, as exporters say the currency’s strength threatens profits.
The rupee has risen 1.1% against the dollar, 16% versus the euro and 1.9% to the yen in 2015 even as Reserve Bank of India sales of the currency swell foreign reserves to a record $343bn. ING Groep, Malayan Banking and ABN Amro Group, the most-accurate forecasters in Bloomberg rankings, predict the rupee will drop as much as 3.4% to 64.50 a dollar by December 31 on intervention and outflows when the US raises interest rates.
“We’ll have to strive hard to protect profitability,” Sunil Khandelwal, Mumbai-based chief financial officer at Alok Industries, which supplies clothing to Wal-Mart Stores, said in an April 9 interview. “The RBI is significant in maintaining a balance in the market and they’re preparing to counter the inflows.” Governor Raghuram Rajan said on April 7 the rupee’s relative strength is pressuring margins of some exporters. The RBI’s gauge of the currency’s inflation-adjusted exchange rate versus India’s six largest trade partners has strengthened 24%, suggesting overvaluation. Bank of America Merrill Lynch predicts the authority will buy $62.5bn in 12 months to check the advance.
“The intervention is clearly to slow down the pace of rupee appreciation to ensure exporters’ price competitiveness, and to warn speculators that one-way bets won’t be tolerated,” Roy Teo, a Singapore-based strategist at ABN Amro, said in an April 8 phone interview. “The RBI will lean against the rupee,” weakening it to 64 a dollar by the year-end, he said.
The central bank bought $12.1bn in the spot market in January, the most in seven years, RBI data show, and has added reserves faster than its largest emerging-market peers. Exports fell 15% in February from a year earlier, the biggest drop since August 2009, according to data compiled by Bloomberg, following declines in December and January. The three-month slide is longest since September 2012.
“Indian exporters are facing a very difficult situation due to rupee’s appreciation against major currencies such as the euro,” SC Ralhan, Ludhiana, Punjab-based President of Federation of Indian Export Organisations, said by phone on April 9. “We’re hit by high raw material costs and interest rates locally, and a global slowdown.” The rupee has appreciated as Rajan and Prime Minister Narendra Modi’s steps to curb inflation and spur growth lured $13bn into local bonds and stocks this year, following record inflows of $42bn in 2014. Signs of economic improvement prompted Moody’s Investors Service to raise its outlook on India’s debt rating to positive from stable April 9.
The burden of high borrowing costs on exporters is an opportunity for investors. While the RBI cut its policy rate to 7.50% in two moves this year, it matches the level in Indonesia and is the highest among major Asian economies. Borrowing in dollars to invest in rupees returned 3.3% this year, the highest among 12 Asian carry trades tracked by Bloomberg. The 10-year sovereign bond yield rose one basis point to 7.81% on Monday.

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