The Indian currency exchange rate is in a narrow range against the dollar, but is steadily growing against the ruble.

By Rhod Mackenzie

The Indian rupee begins trading on Thursday, February 1, with a slight decline against the American currency - by 0.08%, to 82.97 per dollar. Overall, the pair has traded around 83 per dollar since mid-January, slightly weaker than its four-month high of 82.8 reached on January 15.
The rupee is expected to remain in this narrow range for now as traders await India's federal budget announcement this week. Investors will be closely monitoring any reforms in key sectors of the economy, including possible tax breaks and reductions in GST (integrated goods and services tax, a kind of VAT analogue).

The Finance Ministry said the Indian economy could post growth of above 7% in the coming years. Hopes are placed on the financial sector, as well as on the consequences of recent and future structural reforms.

India's GDP grew 7.3% in fiscal 2023-24, beating market expectations and in line with persistent upward forecasts for Indian equities and sovereign debt sustainability.

In addition, the Reserve Bank of India (RBI), the country's central bank, has repeatedly intervened in foreign exchange markets to prevent the rupee from falling below a record low of 83.4, a level that has been regularly tested by markets since the third quarter of 2023. Thus, on November 10, 2023, the rupee fell to 83.42 per dollar. Before this, the RBI did not allow the currency to go beyond 83.30 for more than a month.

Overall, market participants are confident that the Reserve Bank of India will defend the currency in a "systematic manner" as it has done in recent months. This opinion was expressed to Reuters by Arnob Biswas, the head of currency research at SMC Global Securities.

Investors are betting that the rupee will break out of its recent narrow range and rise this year, according to the Indian newspaper the Economic Times. Thus, Amit Pabari, managing director of the consulting company CR Forex, told the publication that “current dynamics suggest a likely continuation of this upward trend with further progress towards 82.50 in the near term.

The Indian rupee has been trading in a very narrow sideways pattern for six months now - in fact, nothing is happening in the USD/INR: 83 pair, confirms Mikhail Zeltser, stock market expert at BCS World of Investments. The amplitude of fluctuations since September has been about 0.5%. Nevertheless, these are still historical lows for the Indian national currency against the US dollar, and stopping the steep devaluation of the rupee in recent months is the work of the Indian Central Bank against the backdrop of strict foreign exchange controls.
India's trade balance continues to remain negative (exports are less than imports), and the global dollar DXY itself is strong amid the postponement of the Fed rate cut to a longer period, the target for May. Taken together, factors in India's internal environment and the external dollar exchange rate do not allow the process of strengthening the INR to begin. Such sideways dynamics may last indefinitely, the analyst believes.

“Regarding the ruble, the INR/RUB pair has met our target for a fall to the 1.05 area and has now rebounded to 1.08. A slight upward rollback does not indicate the strength of the rupee, but only reflects the stabilization of the ruble against all world currencies - the Russian currency, having reached its 6-month highs in January, stopped strengthening. Apparently, the current ruble exchange rate satisfies both exporters and importers, and our country’s budget is drawn up based on an exchange rate of 90 per dollar. It is through cross exchange rates that we get such dynamics of the rupee against the ruble. Probably, the conversion rate of 1 rupee of no more than 1.1 rubles will remain in the next months,” Mikhail Zeltser expects.

As Vadim Zanozdrin, a financial analyst at the Finmir marketplace, calculated, over the past five years the exchange rate of the Indian rupee has increased by 8%, from 10 to 10.8 rubles per 10 Indian rupees. Due to foreign exchange regulations in India, the Indian Rupee is not a freely convertible currency. Currency exchange transactions can only be carried out through authorized banks, which caused a delay in the start of trading in this currency on the Moscow Interbank Currency Exchange.

The Indian rupee may be of great interest to Russia, the analyst believes. Trade turnover between the countries is at a historically high level. India has not joined Western sanctions and continues to increase its trade with Russia. India is also a member of the BRICS alliance. The growth of the Indian economy is also very high; in 2023, the economy grew by 6.7%, according to the IMF, and forecasts for 2024 and 2025 are at 6.5%.
“From a technical point of view, considering the prospects for the Indian rupee and ruble pair, we can assume that the Russian ruble will tend to weaken against the rupee in the near future and the rate may rise to 11.10 rubles per 10 Indian rupees. The support level is around 10.50, the resistance level is 11.10 rubles per 10 Indian rupees,” points out Vadim Zanozdrin.

The situation with the rupee in Russia is influenced by two factors, Maxim Chereshnev, a member of the General Council of Business Russia, Chairman of the Board of the Council for the Development of Foreign Trade and International Economic Relations, told the magazine Monocle. On the one hand, a large amount of this currency has accumulated with partners of export companies, on the other hand, the return of rupees today is possible at a negative rate (-5%).

If the exporter is not ready to return rupees at this price, then he begins to look for other options, the analyst explained. In particular, there are cases of investments in India, including in the stock market, or in some other purchases and supplies for further import to Russia. At the same time, Russian importers are accustomed to paying to India with an additional payment of the same 4-5%.

“The market is quickly getting used to the new rules of the game. I am sure that the cost of payments will gradually decrease, and they will be within the usual framework of standard bank tariffs,” noted Maxim Chereshnev. — An important nuance: the rupee is not a freely convertible currency and is actually found only in India. Therefore, when we talk about “return”, we still mean that the rupees still remain in India, and regular ruble payments come here.”