Balance sheet flexibility may allow the RBI to allow the rupee to appreciate, the report said

RBI’s total forex sales for the first 9 months of FY2023 were $189 billion. (File)


The Reserve Bank of India (RBI) is likely to be comfortable with its balance sheet at the end of March 31, giving it flexibility to allow the rupee to appreciate, analysts at Citi wrote in a note on Wednesday.

According to the new economic capital structure adopted by the central bank of India in 2019, the risk buffer should be maintained between 24.5% and 20% of its balance sheet.

The RBI will consider this buffer during forex interventions, Citi economists said, adding that the comfort on the buffer front could mean the RBI would be relatively open to allowing the rupee to appreciate somewhat.

Citi estimates RBI’s total forex sales in the first nine months of 2023 at $189 billion, against $96 billion in fiscal 2022.

“Higher gross sales will mean more profit for RBI and offset some of the losses in other parts of their portfolio,” said Samiran Chakraborty, senior economist at Citi.

Revaluation reserves form part of the RBI’s risk buffer and help cushion the depreciating rupee, as it means the RBI is sitting on a profit.

“The RBI’s forex intervention to maintain the relative depreciation of the rupee against the US dollar has resulted in substantial accumulation of revaluation reserves,” Chakraborty noted.

This savings is enough to meet the RBI’s strict risk buffer of 24% without reducing the 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 to the dollar in the “medium term”.

Chakraborty pointed out that there was a significant improvement in India’s current account outlook, which he said “is still being underestimated by markets”.

(Except for the title, this story was not edited by NDTV staff and was published on a syndicated channel.)

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