Rupee May Stabilise as RBI, Govt Unveil Measures to Attract Foreign Funds: Goldman Sachs

Rupee’s decline may be approaching a floor after the Reserve Bank of India (RBI) and the government introduced measures to attract foreign capital, Goldman Sachs Group said according to a report by Bloomberg.

In a note, analysts including Kamakshya Trivedi wrote that the steps “should limit the depreciation pressure on the rupee” and predicted a plateau in the dollar/rupee rate, Bloomberg reported.

Friday’s measures include tax exemptions on foreign investments in government securities, broader access for foreign investors to debt categories, and exemptions for banks raising foreign-currency bonds and deposits. Some analysts estimate these measures could bring in up to $50 billion in inflows.

Goldman’s outlook is notable as the rupee hit a record low of 96.9650 per dollar last month amid rising global crude prices and record overseas equity outflows.

Some analysts had speculated it could fall further to 100 per dollar.

The bank now expects the dollar/rupee rate to be 96 in three months, down from 97, while maintaining its six-month forecast at 96 and projecting 97 in 12 months, up from a prior forecast of 96.

The rupee fell as much as 0.4% to 95.36 on Monday after its biggest gain in over two months on Friday.

“To be clear, we do not expect substantial spot appreciation either,” Trivedi said.

“Rupee depreciation is in line with other key energy-importing currencies in the region, and any renewed capital inflows will be used to rebuild reserves and unwind the short forward book.”

Since the outbreak of the Iran conflict, the rupee’s carry has risen and remains higher than other Asian high-yield currencies such as the Indonesian rupiah and Philippine peso.

Goldman noted that the rupee is among the more undervalued emerging market currencies versus the dollar in the higher carry segment, making a case for its inclusion in diversified carry baskets.