Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

Barclays sees potential rise in USD/INR amid market headwinds

EditorTanya Mishra
Published 10/18/2024, 09:04 AM
© Reuters.
USD/INR
-

Barclays has indicated that the Reserve Bank of India (RBI) seems to be allowing the USD/INR exchange rate to find a new trading range, influenced by various economic factors.

The bank projects that the USD/INR rate could potentially reach approximately 84.40 in a gradual manner, although it also anticipates increased risks of retracement with every 0.5 unit change in the rate.

According to Barclays, the RBI's stance comes amid rising crude oil prices, record-high gold prices, a strengthening US dollar, and escalating risk aversion in the region. These factors have contributed to foreign portfolio investors becoming net sellers of Indian stocks in October. Despite a recent pullback in crude oil prices, Barclays expects other balance of payments challenges to persist in the near term, which could lead the RBI to tolerate a new range for the USD/INR.

Barclays also foresees a continuation of foreign investors reducing their overweights in Indian equities towards the year's end. This trend may be driven by a slowdown in growth, an uncertain domestic inflation outlook, and a reassessment of emerging market positions ahead of the US elections in November.

However, the report notes that this is unlikely to cause a significant downturn in Indian equity indices due to strong domestic buying and the financialization of household wealth in India.

The financial institution suspects that the RBI's recent allowance for the USDINR to surpass 84 could be due to the sharp gains in the Indian rupee's nominal effective exchange rate (NEER) since the end of September.

Barclays' analysis points to significant shifts in the INR NEER since 2000, with the most recent change occurring in 2020, which aligns with the RBI's adjustments to its NEER calculations.

Barclays also mentioned that the International Monetary Fund (IMF) reclassified India's exchange rate regime from "floating" to "stabilized arrangement" from December 2022 to October 2023, based on the RBI's management of the exchange rate. The RBI, however, has contested this reclassification, maintaining that its interventions were to address market disorder.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.