BNP has a year-end target of 80 to the US dollar.

BNP Paribas’ global head of India expects the Indian rupee to trade in a range of 81-84 against the dollar over the next quarter as the Reserve Bank of India (RBI) continues to play a key role in managing market volatility, says Ashutosh Tikekar.

Essentially, the RBI plays a critical role. Unless there is a massive dollar-strength story or a big equities selloff coupled with US rates moving higher, we feel the RBI will look to smoothen excess volatility on either side,” a top treasury official at BNP Paribas told Reuters.

So, we are at 81 to 84 for the next quarter,” Tikekar added.

As the rupiah rose, the central bank increased its reserves and sold dollars if necessary to prevent the currency from falling to record lows around 83.30, several market participants said.

The RBI will continue to do so and mitigate volatility in the process, Ashutosh added.

Tikekar believes that one of the key variables for the Rupee in 2023 will be that the history of US Dollar Index strength will “disappear” and the Dollar will weaken against major currencies.

Tikekar thinks this could happen if the correlation between Fed rate hikes and the US dollar “becomes increasingly weak” to the point where the currency’s strength is “out of proportion” to the rate hikes.

Bofa Securities predicts further rupee gains in the near term, joining Citigroup as the narrowest trade deficit in a year that bodes well for the country’s external finances.

Abhay Gupta, a strategist at BofA Securities, said in a note: “The recent correction in rupee valuation and near-term improvement in current-account and capital flows tilt the risk-reward in favor of rupee appreciation.” The company has turned ‘constructive’ on the local currency.

The rupee’s carry-to-vol is attractive within EM, RBI’s reserves have recovered, REER index declined and INR volatility is lower,” Gupta noted. “Debt inflows have started to trickle-in as India bonds still offer better carry compared to the region with low currency volatility,” he further said.

In a note last week, Citigroup recommended exposure relative to the tactically bullish rupee, as it expects a seasonally outperforming rupee to end its fiscal year stronger in nominal effective terms.

On USD-INR outlook, Anand James, Chief Market Strategist at Geojit Financial Services, said, “Expect initial slippages to be contained near 82.69, followed by upswings to 82.95. Alternatively, a breach of 82.69 could call for 82.43.”