Indian rupee to trade in a narrow range in near term: Reuters poll

A man counts Indian currency notes inside a shop in Mumbai

By Vivek Mishra

BENGALURU (Reuters) - The Indian rupee will trade in a tight range against the U.S. dollar over the next three months, close to its historic low, but any hawkish moves from the Federal Reserve on rates could send it sliding, a Reuters poll of analysts found.

After a 10% decline in 2022, the rupee has traded within its narrowest range in nearly two decades this year, as the Reserve Bank of India has regularly intervened to shelter the currency from big swings.

The rupee's implied volatility, already at its lowest since 2008, was likely to continue for at least another three months and the dollar was expected to remain strong, according to the June 2-7 poll of 35 foreign exchange strategists.

Median forecasts showed the rupee will trade at 82.33/dollar and 82.25/dollar by end-June and end-August respectively from about 82.53/dollar on Wednesday. It was forecast to gain about 1% to 82.00/dollar by end-November and nearly 2% to 81.09/dollar in a year.

Those predictions, which were slightly weaker than in May, were driven by expectations the Fed will pause its rate-hiking campaign at its next meeting on June 14.

"The paring of the Fed rate cut bets from the end of the year and the debate about whether the June hike is live or not are contributing to the resurgent strength of the dollar, which is weighing on the rupee," said Dhiraj Nim, FX strategist at ANZ.

"In the near term, that pressure on the rupee will remain. Despite all of this, the rupee still remains below 83, where the RBI has kind of drawn a line in the sand, but also just by virtue of their FX intervention. So, they will ensure the rupee (does) not react to this dollar strength."

A handful of analysts forecast the rupee would hit a new record low by this time next year, including Vadilal Forex, one of the top five forecasters for the rupee in 2022. It expects it to sink to 84.80/dollar by end-November.

Some near-term direction may come from the RBI's explanations for its decision later on Thursday, when it is widely expected to leave the repo rate unchanged at 6.50%.

With inflation likely to have eased to a 20-month low in May, a dovish stance by the RBI, when other central banks are keeping the doors open for further policy tightening, would result in wider interest rate differentials and a weaker rupee.

(For other stories from the June Reuters foreign exchange poll:)

(Reporting by Vivek Mishra; Polling by Devayani Sathyan and Madhumita Gokhale; Editing by Hari Kishan, Ross Finley and Barbara Lewis)