Rupee poised to hold ground in FY24, experts say

Bengaluru: The Indian rupee reached its lifetime low against the dollar in late November, 2023. However, it was range-bound the whole of the financial year 2023-24, thanks in no small part to the intervention of the Reserve Bank of India in the forex market. This resilience is expected to continue in the January-March quarter as well, as per the results of a currency poll conducted by DH last week.

The mean estimate from 15 currency analysts and economists placed the domestic currency’s value against the greenback at 83 per dollar for the fiscal ending on March 31, 2024. Over 65% of the poll participants supported a marginal appreciation over the local unit’s closing value of 83.16 to the dollar on the last trading day of 2023.

“One notable factor mitigating aggressive rupee depreciation in the next quarter is the forward premium on the US dollar,” said Nirav Karkera, who heads research at financial services provider Fisdom.

Others cited a comfortable forex reserve position at above $600 billion, inclusion of Indian government bonds in the JP Morgan Global Bond Index and anticipated rate cuts by the US Federal Reserve in 2024 as major support drivers for the home currency.

“A key tailwind is the likelihood of further improvement in the current account, which we expect to post a surplus (about 0.1% of GDP) in FY24, and to remain close to a surplus in H1FY25,” Prasenjit Basu, chief economist at ICICI Securities, said.

According to the least optimistic estimate in the polling exercise, the home currency could breach the 84-mark against the dollar by the end of the financial year.

The rupee earned global acclaim in the 2023 calendar, even as it recorded multiple lifetime lows against the US dollar during the period. As opposed to an 11% slide in 2022, the local unit depreciated 0.7% against the greenback in 2023 to post its best performance since 2013.

“Despite market turbulence from foreign portfolio investor flows, crude oil prices, the dollar index and geopolitical risks in 2023, the USD INR pair showed minimal volatility at 3%,” added Karkera.

Meanwhile the dollar index - which tracks the greenback against a basket of six currencies - saw a 2% drop in 2023, after two years of strong gains.

Just a couple of weeks ago, the International Monetary Fund (IMF) reclassified India’s exchange rate regime to “stabilised arrangement” from “floating”, saying stability in the value of rupee in the past one year despite external shocks was due to excessive interventions by the RBI. The central bank disagreed with IMF’s assessment, calling it ‘unjustified’.

About 12 out of the 15 poll participants singled out RBI’s proactive role in controlling the movement of the rupee in 2023, amid a complex economic landscape and interplay of geopolitical tensions. “The central bank’s efficacy in forex market management and timely interventions in the forward market to counteract excessive depreciation and vulnerability of the Indian rupee cannot be overstated,” said Riya Singh, research analyst for currency and commodities at Emkay Global Financial Services.

However, concerns remain as 2024 commences. “The potential for fiscal slippage as elections approach could exert influence over the rupee’s performance,” founder of Wealthwave Insights, Sugandha Sachdeva cautioned, adding that geo-political risks still persist and any escalation in the Middle East conflict could amplify demand for the safe-haven dollar, putting downward pressure on the domestic currency.

Experts also warned against a disruption in oil supply stemming from geopolitical conflicts or supply cuts from OPEC+ oil producers. India relies on imports for over 85% of its crude oil requirement.