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The Reserve Bank of India (RBI) is expected to aggressively intervene in the currency markets if the rupee faces excessive downward pressure toward the 98 to 100 mark, though short-term capital inflows will provide a major cushion against global energy shocks, according to Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities.
Speaking to ANI on Thursday, Banerjee highlighted that while the rupee has already depreciated by nearly 8-9 per cent since the onset of the West Asia conflict, giving sufficient breathing room to domestic exporters, any further slides would directly fuel domestic inflation. "The RBI will be quite aggressive there," Banerjee said, adding that the central bank is heavily banking on upcoming, lumpy capital inflows to organically shield the currency. A major pillar of India's short-term defence against a widening Current Account Deficit (CAD) will be the anticipated USD 50 billion influx via Foreign Currency Non-Resident-Bank (FCNR-B) deposits and External Commercial Borrowings (ECBs) slated for August and September. Highly lucrative structured banking products offering 20 to 30 per cent leveraged returns on dollar deposits are driving this momentum. "A USD 50 billion flow over two and a half months can create enough supply of dollars in the system that it can withstand any oil price shock," Banerjee noted, explaining that this influx effectively covers three to four months of India's average monthly crude oil import bill of USD 60 to USD 70 billion. Addressing the recent spike in global energy markets--where crude has breached USD 85 per barrel--Banerjee labelled the current energy bull run as "completely artificial," as it is neither demand-led nor structurally supply-led. Instead, the volatility is driven by critical geopolitical bottlenecks in the Strait of Hormuz, where tanker flows recently plummeted to just 10 per cent of their normal capacity. "As long as the Hormuz remains completely disrupted, oil prices can once again get back to USD 100," Banerjee warned. However, he maintained that an operational range of USD 70 to USD 100 will govern Brent crude for the next six months, as global economic conditions in Europe and China cannot absorb prices beyond the triple-digit threshold. While the newly enacted India-UK trade agreement remains a massive long-term positive for Foreign Direct Investment (FDI) and technology transfers, Banerjee emphasized a distinct "time mismatch," noting that trade pacts take over two years to materialize into tangible currency defences. Consequently, the immediate defence against energy supply shocks rests entirely on financial market mechanisms. Looking ahead to the upcoming Monetary Policy Committee (MPC) meeting, Banerjee predicted a strict status quo on interest rates from the RBI, mirroring the US Federal Reserve's current "wait-and-watch" stance as central banks navigate an unpredictable geopolitical landscape. (ANI)
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