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Rupee's Limited Rise: Economists Predict Mild Gain, Then Fall
13 Jul
Summary
- Rupee to recover marginally, peaking just above 94 to the dollar.
- Global risks and dollar demand limit projected currency gains.
- RBI's measures aim to attract $40-70 billion in dollar inflows.
The Indian rupee is forecasted to experience only a slight recovery in the upcoming months. Economists anticipate the currency will strengthen to just above 94 against the US dollar by the end of September. Following this modest gain, it is projected to weaken, falling below 95 by December.
This tempered outlook contrasts with earlier expectations of a more substantial rupee appreciation. The Reserve Bank of India implemented measures in early June to boost dollar inflows, including a concessional swap facility for external commercial borrowings and FCNR(B) deposits. These initiatives are estimated to attract between $40 billion and $70 billion.
However, persistent dollar demand, coupled with external risks and geopolitical tensions, is expected to limit the rupee's upward movement. Shifts in US economic data have reinforced expectations of Federal Reserve rate hikes, supporting the dollar and potentially reducing capital flows into emerging markets like India.
Furthermore, global geopolitical developments, particularly concerning oil markets, add to the rupee's vulnerability. While a steep depreciation like that seen earlier in the fiscal year is unlikely due to the RBI's interventions establishing a floor, significant gains also appear improbable.
