Fund inflows to strengthen rupee to 81/$ by 2024-end: Goldman Sachs

Current account deficit likely to fall to 1% in FY24

New Delhi: The calendar year 2024 is likely to be a good year for the Indian currency with the rupee likely to appreciate to 81 against a dollar on the back of heavy foreign capital inflows, low current account deficit and adequate forex reserves, global brokerage firm Goldman Sachs said on Tuesday.

There are two notable reasons for the expectation of strong capital inflows into India. India’s inclusion in JPMorgan’s global bond indexes is likely to lead to strong debt inflows. Indian securities is scheduled to be added to the JPMorgan Government Bond Index-Emerging Markets starting June 28, 2024. According to Barclays, the move is likely to result in inflows of $20-25 billion in the Indian economy over the course of around 18 months.

Cut in policy rates by the US Federal Reserve is likely to boost fund flows in the Indian equity markets. The US Fed is widely expected to start a rate easing cycle in the first half of 2024.

In a note Goldman Sachs said that the Indian rupee is projected to trade in the range of 82-83 per dollar over the next three-to-six months and may strengthen to 81 per dollar by the end of 2024.

The Indian rupee depreciated by 11 paise to 83.32 against a US dollar on Tuesday. The rupee has depreciated for the second consecutive day in the 2024 calendar year after maintaining a rare stability in 2023. During the calendar year 2023, the rupee depreciated by just 0.5 per cent against the US dollar. This is the smallest change in the value of the rupee in more than two decades.

According to Goldman Sachs Chief India Economist Santanu Sengupta, the positive outlook on the Indian rupee is fuelled by expectations of substantial foreign capital inflows, particularly as the Reserve Bank of India (RBI) continues to accumulate inflows and bolster forex reserves at every available opportunity.

India’s foreign exchange reserves (forex) increased by $4.47 billion to $620.44 billion in the week ended December 23, 2023, the highest level in 21 months, as per the latest RBI data.

Goldman Sachs has also given positive projections for India’s current account deficit. For the financial year 2023-24, it has lowered India’s current account deficit projection to 1 per cent from its earlier estimate of 1.3 per cent of GDP. For 2024-25, it has lowered the country’s current account deficit projection to 1.3 per cent from an earlier estimate of 1.9 per cent.

Decline in global crude oil prices will help bring down India’s current account deficit and bolster currency. Goldman Sachs has revised downward crude oil price forecast for 2024 to $81 per barrel from its earlier estimate of $90 a barrel.

India’s oil imports bill declined to $164 billion in January-November 2023 period as against $189 billion recorded in the same period last year, registering a decline of around 18 per cent, as per the latest official trade data. Low oil import bill has helped narrow the current account deficit so far in 2023-24. The current account deficit stood at $67 billion or 2 per cent of GDP in the financial year 2022-23.