Flows from foreign portfolio investors (FPIs) would have an impact on the movement of rupee against the US dollar bringing it to the downside on occasion. While the USD-INR pair is expected to remain in a range between 82 and 84 for FY 2025, in the near term 83.50 looks like a strong resistance for the pair while 82.50 acts as a strong support.
These aforementioned support and resistance levels will remain sacrosanct for the Reserve Bank of India (RBI) and the Central Bank will likely keep the pair within this range to ensure all-round stability.
However, RBI has already said that it can manage huge inflows with ease which means it will be able to buy dollars and ensure that appreciation is not beyond a certain level. Similarly, with a lot of outflows related to oil, defense and government debt repayment/corporate repayments happening the bidding of $ would also be there and that should keep the upside intact with RBI again stepping in to intervene. So expect the rupee to be in the above-defined ranges for the year ending 2025.
The Indian Rupee was at 73.77 on January 11, 2022, a month before the start of the Russia-Ukraine war after which the level was never seen. After this, the rupee has been declining steadily. It made a low of 83.48 in October 2022. Since then, the rupee has remained in a band of 80.50 to 83.50. The band was further narrowed to 82.50 – 83.50 as RBI intervened from both sides during the period October 2023 to April 2024.
From the above charts, one can see that the $ index has fallen off its highs of 114.78 and is now hovering near 104.50 and has been in a range of 107.34 to 100.61. It lost strength when talks of 6-7 rate cuts in $ in 2024 with the first being in March 2024 were discounted by the market. It gained when the talks of rate cuts in June 2024 subsided and now the rate cuts could come on towards the end of 2024 due to the continued strength of the US economy.
China being our main competitor in respect of exports we can see how the Yuan has weakened from 6.30 to 7.40 and has been in a range in the past 6 months. The Indian currency has strengthened against the Yuan from 12.24 to 11.50 currently with the highest being 11.20 in July 2023 because of the relative strength of the Indian economy as compared to the Chinese Economy. Overall from above we can see that currencies have weakened against the dollar in the last two years but have been range-bound i ..
A range-bound rupee will allow exporters and importers hedging opportunities at appropriate levels while foreign inflows will get a boost with a steady rupee. FPIs like a stable currency rather than one that is volatile.
A stable rupee will keep a tab on inflation as commodities prices due to rupee remain stable. A depreciating rupee increases costs which impact the common man the most.
A stable rupee will also keep the cost of borrowing foreign currencies lower than a depreciating rupee. Borrowers can repay principal and interest with less impact on their P&L.
For markets obviously a stable rupee does not give trading opportunities but a 60-70 paise movement is a good opportunity for increased volumes.
(The author is Head of Treasury and Executive Director at Finrex Treasury Advisors LLP)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Source Name : Economic times