By Nimesh Vora
MUMBAI, Feb 20 (Reuters) - The Indian rupee is likely to
hold an 81-to-84 range against the U.S. dollar in the next
quarter, with the Reserve Bank of India continuing to play a
pivotal role in managing volatility, a top treasury official at
BNP Paribas told Reuters.
The rupee has been in a range of 80.88-82.94 so far
this year, likely helped by the RBI's interventions. The central
bank governor said earlier this month that the rupee was one of
the least volatile Asian currencies last year and remains so.
The RBI has bolstered its foreign exchange reserves when the
rupee has rallied and sold dollars when required to prevent the
local currency from falling near its record-low of 83.30,
according to several market participants.
The central bank will continue to do so and, in the process,
dampen volatility, Ashutosh Tikekar, head of global markets at
BNP Paribas India, said on Friday.
"Essentially, the RBI plays a critical role. Unless there is
a massive dollar-strength story or a big equities selloff
coupled with U.S. rates moving higher, we feel the RBI will look
to smoothen excess volatility on either side," Tikekar said.
"So, we are at 81 to 84 for the next quarter."
BNP has a year-end target of 80 to the dollar.
Tikekar reckons that one of the important variables for the
rupee this year will be that the dollar index-strength story
"will go away" and the dollar will weaken against its major
peers.
This, he believes, will happen as the correlation between
the U.S. Federal Reserve's rate hikes and the dollar "will be
weaker and weaker" to the extent that the currency's strength
will "not be proportionate" to rate hikes.
He expects emerging market currencies "in general" to
strengthen.
BOND YIELDS SEEN RANGEBOUND
Tikekar also believes that India's 10-year government bond
yield will not deviate significantly from the
current levels, of 7.36%, despite persistent worries about
inflation.
"I think the 10-year will be around 7.25-7.50% for the time
being."
"There is no reason for the RBI to move (interest rates)
beyond 6.75% unless inflation goes out of control totally. The
market is not positioning for that kind of surprise."
The RBI raised the repo rate to 6.50% on Feb. 8.
After a bigger-than-expected jump in domestic inflation last
month, some economists now expect the central bank to raise
rates once more, by 25 basis points, in April.
(Reporting by Nimesh Vora; Editing by Savio D'Souza)
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.