The Indian rupee is likely to strengthen, benefiting from carry trades and hopes that the Reserve Bank of India may loosen its monetary policy more slowly than peers.The portrait of Mahatma Gandhi is displayed on Indian rupee banknotes in an arranged photograph in Bangkok, Thailand, on Wednesday, Sept. 12, 2018.Higher interest rates boost a country's currency, attracting foreign investment and increasing demand for the country's currency.
He noted that the Chinese currency's exchange rate will likely hover in "a narrow band around the current exchange rate of 7.10.". The currency is pegged with a so-called daily midpoint fix to the greenback based on the yuan's previous closing level and quotations taken from inter-bank dealers. The Indian rupee could benefit from carry trades this year, a strategy where traders borrow low-yielding currencies such as the U.S. dollar in order to buy high-yielding assets like bonds.
Banerjee noted that the RBI's rate cut pace will be "far slower" than the Fed and "will always significantly lag the Fed because India did not have the same inflation problem which Europe or America had."