Rupee breaching 85 has traders watching for RBI’s line in sand

The rupee breaching 85 per dollar has traders speculating about the next line in the sand under the new central bank governor.The currency is expected to weaken further after falling to a record low on Thursday as signals of fewer Federal Reserve interest-rate cuts boost the dollar. Nuvama Institutional Desk predicts the rupee will hit 86 against the greenback by March-end, while Kotak Securities Ltd sees it breaching that level.While global factors weigh on the rupee, traders will be focusing on the central bank’s foreign exchange market interventions as new Governor Sanjay Malhotra succeeds a monetary regime that had firmly curbed volatility in the currency."There’s going to be continued intervention from the RBI to limit the volatile moves, but given the pressure mounting on peers, particularly the Chinese Yuan, the rupee may not see very tight ranges,” said Sakshi Gupta, an economist with HDFC Bank Ltd, predicting the rupee in 85-86 per dollar bracket until March.The rupee has seen a series of record lows as the country’s trade deficit expanded more-than-expected in November to a record of $37.8 billion. Despite that, it fell the least among emerging Asia peers this year due to the RBI’s firm grip.While the RBI has not yet signalled a shift in its intervention strategy under the new chief, analysts say a decline in import cover may prompt the central bank to allow the rupee to weaken in line with peers."Our sense is that now import cover is down to 10 months,” Standard Chartered Bank economist Anubhuti Sahay said. "The tolerance for a stronger dollar at the RBI increases significantly once the import cover moves toward nine months,” she said, predicting the rupee at 85.50 by the month-end.