Mumbai: The Reserve Bank will continue to buy the US currency at the 58-level, says a report by Bank of America Merrill Lynch (BofA-ML). The rupee has gained 3 per cent in the past fortnight, riding high on the wave of Narendra Modi-led BJP's decisive election victory. "We expect the RBI to continue to buy foreign exchange at Rs 58," the report said.
According to many analysts, the fair value of the rupee is in the 58-60 range. The report estimates that the Central bank will need to raise USD 80 billion just to maintain import cover at the present eight months. In an earlier report, BofA-ML had said it expects RBI to recoup the USD 70 billion of dollars sold, barring concessional and oil dollar swaps, since 2008-end, as soon as possible.
The report said that in the current scenario, the central bank does not need to sterilize cost of large-scale for-ex intervention. "We think it is a long way off from sterilization in the first place. Our estimates suggest that the RBI will need to inject about USD 44 billion of reserve money to fund a 5.4 per cent growth. It is only after it has bought USD 44 billion of for-ex that the question of sterilization will arise," the report said.
It, however, estimates that the RBI will buy around USD 33.9 billion of foreign exchange in FY'15. "As a result, the RBI will likely need to do an OMO worth USD 10 billion rather than sterilize for-ex intervention," the report said. BofA-ML believes that sterilization costs should come off in the future as the interest rate cycle peaks off and the US rate cycle bottoms ahead.
