The rupee was trading at 82.21 to the dollar at
0930 GMT. Appreciating to the 80 levels would imply an advance
of 2.7%, a contrast to the near 8% depreciation likely this
fiscal year.
India's CAD forecasts for the next fiscal year have been
slashed on the back of lower commodity prices and the consistent
positive trend in the services trade balance. Barclays recently
lowered its CAD projection for FY24 to 1.8% from 2.3%.
The relative improvement in India's current account balance is reducing the rupee's dependence on the Reserve Bank of India's (RBI) dollar sales and capital flows, Ashish Agrawal, FX & EM macro strategist at Barclays, wrote in a quarterly forecast note. Agarwal reckons domestic drivers will exert a larger influence on the rupee's direction.
Citi too cut its CAD forecast for the next fiscal year, to 1.4% of GDP from 2.2%.
"The remarkable CAD improvement has not been fully grasped by markets and hence could be a factor changing the macro backdrop for the rupee in FY24," said Citi in a recent note. To put the projections in perspective, India's CAD in the July-September quarter reached a nine-year high of 4.4% of GDP. Rupee's valuations were an added factor for its optimistic outlook, analysts said.
The rupee's REER or real effective exchange rate, measured against a basket of currencies, is near four-year lows, Barclays' Agarwal pointed out.
"This could prompt more passive accumulation of dollars by
the RBI," he said.
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India monthly services trade surplus on the rise ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Anushka Trivedi; Editing by Swati Bhat and Janane
Venkatraman)
