Chakraborty pointed out that there has been a sizeable
improvement in India's current account outlook, which he thinks
"is still under-appreciated by the markets".
(Reporting by Anushka Trivedi; Editing by Janane Venkatraman)
MUMBAI, March 9 (Reuters) - The Reserve Bank of India
(RBI) is likely to be comfortable about its balance sheet at the
end of March 31, which would give it more flexibility in letting
the rupee appreciate, Citi analysts wrote in a note released on
Wednesday.
Under a new economic capital framework adopted by the Indian
central bank in 2019, it is required to maintain risk buffers at
between 24.5% and 20% of its balance sheet.
The RBI considers this buffer during forex interventions,
Citi economists said, adding that comfort on the buffer front
could mean the RBI will be relatively open to allowing some
rupee appreciation.
Citi estimates the RBI's gross forex sales in the first nine
months of fiscal 2023 at $189 billion against $96 billion in the
whole of fiscal 2022.
"Higher gross sales are likely to generate more profits for
the RBI and offset some of the losses in other parts of their
portfolio," said Samiran Chakraborty, senior economist at Citi
in the note.
Revaluation reserves form a part of the RBI's risk buffer
and a depreciated rupee helps with build-up since it implies
that the RBI is sitting on gains.
"The RBI's forex intervention to keep the rupee relatively
depreciated against the U.S. dollar has resulted in sufficient
buildup of revaluation reserves," noted Chakraborty.
This buildup is sufficient to meet RBI's more stringent risk
buffer of 24% without it having to reduce its dividend to the
government.
Citi reiterated its call to go tactically long on the rupee
against a basket of Asian currencies and expects the South Asian
currency to reach 80 per dollar "over the medium term".
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