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INDIA RUPEE - Barclays calls rupee decline 'overdone,' BofA Global Research remains bullish

Analysts at Barclays think the recent drop in the Indian rupee is overdone, while their colleagues at BofA Global Research believe that portfolio flows as well as a weaker outlook for the US dollar could help the rupee increase over the rest of the year.

According to BofA’s proprietary flow indicator, both hedge funds and real-money investors increased their long positions in the rupee during last month. The firm predicts that the rupee will strengthen to 84 U.S. dollars per rupee by the fourth quarter of 2025.

Barclays says the rupee’s recent decline is "reaching its limits in the short-term" and advises to fade any weakness near 86.50-87.0 levels.

The firm has not changed its outlook on INR depreciation, even though it sees the rupee's fall as a short-term phenomenon.

The rupee has dropped about 2% since its peak of 84.58 in early May, which was a 6-month high. As of 12:15 PM IST, the rupee was up by 0.1% on the day.

A trader from a private bank stated that while the rupee strengthened due to a rise among Asian peers, dollar bids by at least two large banks abroad, probably on behalf of their custodial customers, limited gains.

Both Barclays Global Research and BofA Global Research analysts have also noted that both the nominal exchange rate and the real effective exchange rate of the rupee has decreased.

In a note published on Thursday, Barclays analysts stated that "given its recent FX Competitiveness Improvement there is less of a need for another near-term drop in the currency."

The Reserve Bank of India released data after market hours on Wednesday showing that the rupee's real effective exchange rate (REER), which is based on 40 currencies, has fallen to 100.36. This is the lowest it has been since May 2023.

A REER reading above 100 indicates an overvaluation, while a reading below 100 indicates undervaluation.

(source: Reuters)