‘Negative surprises a concern; conflict to not majorly hit Rupee’

The rupee is unlikely to be majorly impacted because the current episodes of rupee volatility has been a lot much less and decrease foreign exchange volatility in India have diminished the depreciation dangers, a analysis report from State Bank of India (SBI) mentioned.

“The good thing is that even assuming that the Russian-Ukraine conflict would drag on for now, we expect the USD-rupee, the most tracked pair in local forex market, to trade in an elevated zone. But ideally, the FY23 average should not be higher than 76-78, with an appreciating bias,” SBI report mentioned.

However, as a matter of reality, one shouldn’t rule out episodic currents of volatility in native foreign money in opposition to the USD in case of additional unfavorable geopolitical surprises, it mentioned. The RBI has additionally been utilizing the promote/purchase swap route successfully to supply liquidity, whereas smoothening the ahead premia curve within the shorter tenor. An overwhelming proportion of web ahead e book of the RBI stands maturing between three months to 1 12 months and extra longer tenor swaps, SBI mentioned.

On March 8, $5 billion dollar-rupee swap public sale obtained practically thrice the bids. This ought to assist prolong the maturity, easing the liquidity concern in addition to be tenor antagonistic. “With elevated crude oil prices, the RBI’s intervention in the forex market will reduce rupee liquidity and hence does not require sterilisation operations through forwards,” it mentioned.

SBI report mentioned the RBI might have a look at intervening within the offshore NDF (non-deliverable ahead) market as a substitute of the onshore market via banks throughout Indian time zone.