Amid pressure on the rupee, a German brokerage has suggested that the Reserve Bank of India (RBI) can utilize up to USD 30 billion from its impressive forex reserves, which stand at over USD 594 billion, to safeguard the domestic currency. Even with this expenditure, India will retain adequate reserves to cover import bills for ten months, as per Deutsche Bank’s recent analysis.
The Indian rupee is currently trading near its historical peak against the US dollar, at approximately Rs 83.30. In response to this, the Reserve Bank of India has been actively intervening in the foreign exchange market to manage fluctuations, the brokerage noted.
Deutsche Bank’s report stated, “The RBI can easily spend at least USD 30 billion to defend the rupee, and even then, the import cover will remain around 10 months.” At the close of Thursday’s trading, the rupee gained 5 paise to conclude at 83.06 against the US dollar.
Inflation and Crude Oil Prices
The brokerage also predicted a significant decline in headline inflation for September, estimating it to fall to 5 percent from the 6.8 percent recorded in August. This drop is attributed to lower vegetable prices. However, the report acknowledged an increase in global crude oil prices, which reached USD 95 per barrel.
Despite the surge in global crude prices, the brokerage anticipates no immediate changes in fuel prices at domestic stations. This stability is influenced by upcoming state elections, followed by general elections. Additionally, the central government recently reduced domestic cooking gas prices by up to Rs 200 per cylinder, expected to result in a 0.25 percent reduction in the Consumer Price Index (CPI).
The report pointed out that typically, a ten percent rise in crude oil prices can impact consumer price inflation by 0.30 percent. However, if petrol and diesel prices remain unchanged at domestic pumps, they are unlikely to have a substantial effect on growth estimates. The brokerage reiterated its forecast of FY24 GDP growth at 6.2 percent.
Future Projections
The brokerage anticipates that headline inflation could dip below 4 percent in July-September 2024 due to an exceptionally favorable base effect. Consequently, the RBI may consider implementing a rate cut starting from April 2024. At this stage, the report does not foresee any significant upside risks to the balance of payments estimates, even with the current surge in oil prices. It added that India’s current account deficit is projected to stand at 1.4 percent in FY24.
(This story has not been edited by Smartkhabrinews staff and is published from a syndicated news agency feed – PTI)