Indian Rupee Reaches New Highs and Opens Window for RBI to Strengthen Reserves

The Indian currency is experiencing an exceptional appreciation cycle, recording gains not seen in seven years. According to reports from Jin10, this movement provides the Reserve Bank of India (RBI) with a strategic window to rebuild its foreign exchange reserves, particularly in U.S. dollars. The positive outlook is rooted in the recently negotiated trade agreement between the U.S. and India, which may act as a brake on the rupee’s further strengthening.

Record Rupee Appreciation Offers Strategic Opportunity

Professionals at major financial institutions see this scenario as a profit opportunity. Analysts from Barclays and Nomura Holdings recommend short-selling positions in the Indian currency, betting on a potential depreciation. Nomura Holdings projects that the USD/INR exchange rate could reach 94 by May this year, while Barclays presents a similar forecast through offshore positions with a three-month horizon. These levels reflect expectations that the RBI will use the current exchange rate strength to acquire dollar assets.

Analysts Warn of Continued Volatility

However, not everything follows a predictable path. Joey Chew, head of Asia FX research at HSBC Holdings, issues a note of caution to the market. The RBI’s foreign exchange management has historically shown unconventional moves, including surprise interventions in recent months specifically to curb unilateral speculative bets against the rupee. These actions demonstrate that the Indian central bank prioritizes exchange rate stability even when it conflicts with reserve accumulation goals, complicating forecasts of new levels the currency might reach in the coming periods.