New Delhi: The sensitivity of Asian currencies, including the Indian rupee to the US dollar has "fallen" this year and the INR is expected to end the year at 61 despite a strong USD, a Bank of America Merrill Lynch report says.
According to the global financial services major, the USD/ INR is likely to end the year at 61 despite a strong USD. It has also revised its end-2015 forecast to 60 after factoring in a stronger balance of payments (BoP).
"The RBI's range of tolerance for USD/INR and its intention to build reserves will be the single-biggest driver of the rupee over our forecast horizon, in our view," the report said.
A stronger USD is a clear downside risk for the INR but our estimates suggest the sensitivity to the DXY index has fallen, BofA-ML said in a research note, adding that USD/INR can stay below 62.
The rupee on Tuesday fell by 11 paise to 60.93 against the US dollar in early trade today at the Interbank Foreign Exchange market due to increased demand for the US currency from importers.
Meanwhile, RBI Governor Raghuram Rajan has also indicated that Rs 60-62/USD was a reasonable range given underlying fundamentals.
The global brokerage firm further said that BoP would be INR-supportive.
"Our estimates place India's current account deficit at 1.7 percent of GDP in FY15 and basic BoP deficit at roughly 1 percent of GDP by FY16, consistent with a stronger level of the INR," the report noted.
In the quarter ended June, CAD, which indicates imports of goods services and transfer are higher than their exports, stood at USD 7.8 billion, or 1.7 percent of GDP.
The BofA-ML report further noted that the Central bank would need to raise USD 40 billion just to maintain import cover at the present eight months.
