The Indian rupee is set to become more volatile as the Reserve Bank of India's new governor loosens control over the partially convertible currency as a rampant U.S. dollar exerts relentless downward pressure, a Reuters poll found.
The RBI's actions in the market since Governor Sanjay Malhotra's surprise appointment in December suggest the central bank is moving away from its previous policy of burning through foreign exchange reserves to stem the rupee's unabated decline.
Having slid about 3% in 2024 and another 2% so far this year, the rupee is expected to trade around 87.23 per dollar at end-February and weaken to 87.63 in six months, according to the Feb. 3-5 Reuters poll of 36 foreign exchange analysts.
It was expected to be about 0.6% weaker than current levels at 87.95 in a year's time.
U.S. President Donald Trump's tariff threats are also compounding uncertainty for analysts in forecasting where currencies will trade in the near term.
"Tariffs, trade wars and counter-tariffs from other countries are reasons why we continue to remain uncertain on a daily basis – we don't know what is going to happen next to give a call on this. So if you assume all these factors, it's a vulnerable currency and a 5% depreciation has been seen on the cards," said Anil Bhansali, head of treasury at Finrex.
"I expect the rupee to reach 88-levels by end of March, and it continues to be sold off on every uptick. It's a double whammy for the RBI, surely, because when the rupee is weakening…, the economy is also slowing, which is also an aspect which has to be considered."
The range of short-term forecasts for the rupee, overvalued by more than 7% compared to its trading peers, in the latest poll was one of the widest since late 2022.
That was around the time when the RBI shifted its stance and started to aggressively intervene in the currency market.
Analysts also said expectations of an RBI interest rate cut on Friday are likely to apply further downward pressure on the rupee.
Over 70% of respondents, 45 of 62, in a separate Reuters poll forecast the RBI to cut its key repo rate by 25 basis points to 6.25% this week.
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