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In December, the USD/INR pair fluctuated generally within a range of 50 paise between INR 73.50 and INR 74.00, repeating a rise and fall many times without moving in any particular direction. According to economists at Mizuho Bank, key factors in the market in January are likely to remain the same as those in December. Thus, USD/INR is not forecast to move in any particular direction.

Key quotes

“At the moment, market participants are all selling the US dollar and buying the Indian rupee in the foreign exchange market in terms of real money and risk money. In November, there was $9 B of capital inflow into the Indian stock market from foreign investors, which was an all-time high. In December, there has so far been S6.6 B of inflow (inward security investment). In terms of inward direct investment as well, there has been $40 B of inflow in the April-September period with the recent large-scale investment case. Given these factors, it is easy to expect the Indian rupee to appreciate. However, so far, it has not happened.”

“The Indian monetary authorities have been intervening in the foreign exchange market by buying the US dollar while foreign investors are selling the US dollar. With this regard, the governor of the central bank of India commented at a press conference after a monetary policy meeting in December that the central bank did not have any ideal exchange rate and that there was no particular target rate in carrying out market interventions. Thus, there has still been no clue provided for predicting market interventions in the times ahead.”