Back in March, analysts from at least three foreign banks projected that the rupee is likely to rally against the U.S. dollar this fiscal year thanks to the improving dynamics in India's current account.
India's fiscal year runs from April 1 to March 31.
Barclays projected the rupee to hit 80 per dollar by next March, while BofA Securities expected a move to 79.5 by then. Citi said rupee will move to 80 in 6-12 months.
The rupee currently is down slightly from its March 31 level, at 82.34 to the dollar. This is despite a resurgence in equity portfolio inflows and the U.S. Federal Reserve signalling a conditional pause. In April and May so far, foreigners have poured $4.5 billion into Indian equities.
Senior treasury officials at public sector banks argue that the call for a stronger rupee is unlikely to materialise as the RBI mops up inflows to build reserves and keep the local unit in a narrow range.
Unlike foreign and private banks, state-owned banks rarely make currency projections publicly.
The RBI could keep leaning against any decline on USD/INR pair to build up reserves, an assistant general manager at a public sector bank through which the central bank often intervenes said, pointing to the recent price action.
The banker reckons that the overall range for the rupee will "keep shrinking" and that the USD/INR pair will not fall below the 81 levels.
There is little doubt that the RBI will persist with its two-way intervention strategy to keep a check on the rupee volatility, chief dealer at another public sector bank said. The rupee is likely to be in the 81.50-82.50 range, the dealer said.
The RBI's dollar purchases have helped lift India's forex reserves to $596 billion, the highest in almost a year, according to the latest data published by the central bank. The reserves had dropped to $524 billion in October.
The RBI bought about $8 billion in the spot market in November-February, according to data from the central bank. Data beyond February is not yet available, but based on the changes in the weekly data, economists said that the RBI remains a buyer of dollars.
"Broadly, I agree with what the public sector banks are saying, that RBI reckons the need to continue intervention and build reserves," said Abheek Barua, chief economist at HDFC Bank.
"The RBI probably has a level in mind for the rupee relative to what it thinks is its fair value and in terms of maintaining India's competitiveness."
Barua does not expect the rupee to strengthen past 81 to the dollar.
(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)
By Nimesh Vora
