RBI fighting a lost INR battle

Hopeless Effort

- INR readjustment catching up faster than peers

- It was held stronger in past adjustments by policy intervention

- Active FX intervention an indication of the impending range shift

- RBI will eventually need to let forex rate adjust to new realities

New Delhi: A stronger USD would imply higher global inflation exported by the US, lower global trade, cry for reverse FX wars, and pressure on equities and emerging markets assets, Emkay Global Financial Services said in a report.

The global narrative is undergoing a substantial regional rotation in favour of the US exceptionalism, even as we are unlikely to see the US growth upgrades. The theme of dollar dominance is still alive. While GBPINR is down 4 per cent, USDINR is up 2 per cent since the September FOMC meeting -- one of the worst EM hits.

"King Dollar is still on the throne with RBI fighting a lost INR battle," Emkay Global Financial Services said in the report.

"INR readjustment is catching up faster than peers, as it was held stronger in past adjustments by policy intervention. India's massive FX defence, amounting to more than $100bn estimated since October-21 (spot + forwards) means that the war-chest is falling faster than the pace at which the war is fading. RBI may eventually let the exchange rate adjust to new realities, albeit in an orderly manner, letting it act as an automatic macro stabilizer to the policy reaction function", it said.