RBI has sufficient forex reserves again
RBI will buy forex less aggressively than in the past, having achieved adequate forex reserves (over $500 bn BofAe) again.
RBI has stated that appreciation helps cool high CPI inflation, although we find 'imported' inflation relatively weak.
RBI will likely allow rupee to weaken if the USD strengthens, as it can sell up to $50bn to fend off any speculative attack on the rupee.
"We continue to expect RBI to consolidate the return to adequate forex reserves. The RBI has actually picked up $24.3bn since July until week ending September 11. Our BoP estimates suggest that it can buy $7.6bn more by March 2021,".
On balance, BofA Securities expects the RBI to continue with its asymmetrical forex policy of buying forex when the USD weakens and letting rupee depreciate when it strengthens.
"As inflation peaks off, we think that there still will be a policy bias towards a weak rupee till growth revives. Our forex strategists see rupee at Rs 74 per dollar by December,".