December 30, 2024
New Delhi, India
Rupee Analysis
The Indian rupee dropped by 5 paise to a new record low of 85.53 against the US dollar in early trade on Monday, reflecting continued pressure on the currency. This depreciation comes on the back of a significant decline in India’s foreign exchange reserves, which fell by $8.478 billion to $644.391 billion for the week ending December 20, according to the Reserve Bank of India (RBI).
Central Bank Intervention and Market Trends
The rupee, which has struggled in recent weeks due to robust dollar demand and global market uncertainties, is set to recover slightly following interventions by the RBI. The central bank’s efforts to liquidate speculative dollar-long positions have helped mitigate the currency’s decline. The one-month non-deliverable forward market suggests the rupee may open slightly stronger at 85.40-85.42 compared to its previous close of 85.5325.
However, the rupee remains under pressure due to a combination of factors, including the strength of the US dollar, high US Treasury yields, and concerns over global economic policies.
Year-End Review and Projections
The rupee has depreciated by over 3% in 2024, reaching an intraday low of 85.80 per dollar, down from 83.19/$1 at the start of the year. Analysts forecast continued volatility, with the rupee potentially weakening further to 86.50/$1 by March 2025 before stabilizing as the new fiscal year begins.
This depreciation has both positive and negative implications. While international travel and foreign education costs rise for individuals, those earning abroad and remitting money to India benefit from the sliding rupee.
Key Factors Driving Depreciation
The rupee’s weakness is largely attributed to the exceptional strength of the US dollar, fueled by robust economic indicators and geopolitical concerns, including US-China trade tensions. Additionally, India’s widening trade deficit and rising demand for US dollars for oil imports have added to the pressure.
India’s foreign exchange reserves have also taken a hit, dropping from a record high of $704.89 billion in September to $644.39 billion in December, marking a six-month low.
Global Comparison
Despite the challenges, Shaktikanta Das, former RBI Governor, highlighted that the rupee has been less volatile compared to other emerging market currencies. The RBI’s active interventions have helped stabilize the exchange rate, although persistent outflows from Indian equities and bonds have compounded the depreciation.
Interestingly, while the rupee weakened against the dollar, it appreciated significantly against other major currencies in 2024. The rupee gained 8.7% against the Japanese yen and over 5% against the euro during the year, demonstrating resilience in certain global market segments.
As the rupee navigates persistent headwinds, the RBI’s monetary policies and global economic trends will play a crucial role in shaping its trajectory. With uncertainties on the horizon, the focus remains on stabilizing the currency and managing India’s economic growth amid global challenges.
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