In a recent report, Deutsche Bank has indicated that the Reserve Bank of India (RBI) possesses the capacity to deploy up to $30 billion from its substantial forex reserves, which total over $594 billion, to protect the Indian rupee. Such a move would still leave the country with ample reserves to cover its import bills for the next ten months, according to PTI.
The German financial institution has noted that the Indian rupee is hovering near ₹83.30 against the US dollar, which is close to its all-time high. Consequently, the RBI has been actively intervening in the forex market to mitigate volatility.
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 the trading day, the Indian rupee had appreciated by 5 paise, settling at 83.06 against the US dollar.
The report also outlined expectations for a decline in headline inflation to around 5% in September, down from 6.8% in August, due to reduced vegetable prices. Simultaneously, it highlighted the recent increase in global crude oil prices to $95 per barrel.
However, the report suggested that the impact of this global crude oil price surge on Indian consumers may be mitigated due to upcoming state elections, followed by general elections. The Union government had previously reduced domestic cooking gas prices by up to ₹200 per cylinder in late August, a move expected to lead to a 0.25% reduction in the consumer price index (CPI). Typically, a 10% rise in crude oil prices could affect consumer price inflation by 0.30%, the report added.
Deutsche Bank has maintained its GDP growth outlook for FY24 at 6.2%. However, it cautioned that if domestic fuel prices remain unchanged, they are unlikely to exert a substantial impact on growth estimates.
The report concluded by suggesting that headline inflation could dip below 4% in July-September 2024 due to exceptionally favorable base effects. As a result, the RBI may contemplate a rate cut from April 2024 onwards.
