The Reserve Bank of India is struggling to prop up the rupee, as the central bank's FX intervention "is increasingly becoming counterproductive as it is only breeding questions about adequacy of FX reserves," says Bank of America Merrill Lynch. It does not expect the RBI to waste too much of its precious FX to fight cross-currency pressures from the US dollar and instead expects the central bank to issue a non-resident Indian bond to recoup the more than $20 billion of FX sold to stabilize INR expectations. If EUR/USD heads back towards 1.30-1.35, then BofA Merrill sees the RBI to push USD/INR back to 50-52. USD/INR now trades at 56.23 on CQG.
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