USD/INR is expected to hover around 56 and 54 to a dollar in one and three months respectively, with an upside risk, before retreating only modestly to around 52 and 51 in six and 12 months, say analysts at Barclays Capital.
With limited improvement expected in the macro fundamentals in the near-term, any pullback in USD/INR is likely to be largely dependent on policy initiatives or an improvement in global risk appetite, says report.
Barclays expects RBI to eventually float dollar-denominated bonds through state-run banks like the State Bank of India for non-resident Indian investors which could trigger $12-15 billion inflows in a short time frame.
FX intervention by the RBI would not offer the INR any meaningful or lasting support, it says.
The RBI is likely to maintain a more neutral bias in the next one or two policy meetings after the larger-than-expected 50 bps cut in April, cut the repo rate by a further 50-75 bps by March 2013, it adds.