The Indian rupee is projected to maintain a tight range and experience only marginal appreciation against the U.S. dollar in the coming year, as per a Reuters poll. Despite a robust economy, the Reserve Bank of India’s persistent intervention in currency markets is expected to limit significant fluctuations in the rupee’s value.
Since the start of the year, the rupee has seen a minimal 0.2% increase against the greenback, largely influenced by diminishing expectations for an early rate cut by the U.S. Federal Reserve, which bolstered the dollar’s position.
According to the Reuters poll conducted from February 2 to 6, 42 foreign exchange analysts anticipate a slight strengthening of the Indian currency, with projections indicating a rise from the current rate of 83.05 to the dollar to 83.00 in a month and 82.84 in three months.
While the rupee has outperformed its major Asian counterparts thus far, including the Chinese yuan, Thai baht, and Korean won, its overall gain is expected to be overshadowed by these currencies by the end of January 2025.
Dhiraj Nim, a forex strategist at ANZ, emphasized the likelihood of the rupee continuing to trade within a narrow range in the near term. He anticipates a modest upward bias in USD/INR, driven by supportive factors in India’s balance of payments and the eventual softening of the dollar, leading to slight appreciation in the long run.
Despite the Federal Reserve’s resistance to early interest rate cuts, the RBI is still anticipated to reduce rates later in the year, albeit at a slower pace compared to the Fed. This relative strength of the rupee is expected to persist, buoyed by expectations of India maintaining the fastest growth rate among major economies.
However, the potential for significant gains in the rupee is likely to be curtailed by the RBI’s continued utilization of foreign exchange reserves, currently standing at approximately $616.7 billion, to mitigate volatility in the currency market.
Analysts foresee the rupee gaining more than 0.6% to 82.50 against the dollar in six months and 0.8% to 82.40 in a year, with forecasts ranging between 79.00 and 84.50 over the 12-month horizon.
India’s bond markets have witnessed substantial inflows from foreign investors in recent months, supported by JPMorgan’s decision to include Indian debt in its indexes. Aditya Sharma, an emerging markets strategist at Natwest Markets, highlighted the ongoing portfolio flows into India, attributed to its inclusion in JPMorgan’s GBI-EM index and subdued optimism regarding China. Additionally, the RBI’s foreign exchange interventions are aimed at stabilizing the currency amid broader movements in the USD.
As India navigates the intricacies of its currency market amidst global economic dynamics, the rupee’s trajectory remains closely watched by investors and analysts alike, shaping sentiments and investment strategies in the region.