The rupee is unlikely to be majorly impacted as the recent episodes of rupee volatility has been much less and lower forex volatility in India have diminished the depreciation risks, a research report from State Bank of India (SBI) said.
“The good thing is that even assuming that the Russian-Ukraine conflict would drag on for now, we expect the USD-rupee, the most tracked pair in local forex market, to trade in an elevated zone. But ideally, the FY23 average should not be higher than 76-78, with an appreciating bias,” SBI report said.
However, as a matter of fact, one should not rule out episodic currents of volatility in local currency against the USD in case of further negative geopolitical surprises, it said. The RBI has also been using the sell/buy swap route effectively to provide liquidity, while smoothening the forward premia curve in the shorter tenor. An overwhelming proportion of net forward book of the RBI stands maturing between three months to one year and more longer tenor swaps, SBI said.
On March 8, $5 billion dollar-rupee swap auction received nearly thrice the bids. This should help extend the maturity, easing the liquidity concern as well as be tenor antagonistic. “With elevated crude oil prices, the RBI’s intervention in the forex market will reduce rupee liquidity and hence does not require sterilisation operations through forwards,” it said.
SBI report said the RBI may look at intervening in the offshore NDF (non-deliverable forward) market instead of the onshore market through banks during Indian time zone.