Rupee depreciates 1.40% so far in 2024, likely to head to 85 against US dollar

Indian Rupee

The Indian rupee, which has remained volatile throughout the year, has depreciated 1.40 percent so far in 2024, and experts said that it is likely to hit 85 against the greenback in coming weeks.

There are multiple factors that has affected Indian rupee to depreciate, such as outflows of foreign investors in local equities, strong dollar index, and weak growth data, among others.

Also, the appointment of a new Reserve Bank of India (RBI) Governor also led to fall in rupee because it increases the chances of rate cut by the central bank in the next monetary policy.

However, the Indian rupee is still less volatile among its emerging market peers even after the depreciation, reflecting India’s strong macroeconomic fundamentals and improvement in external sector outlook, RBI said in December monetary policy.

According to the Bloomberg data, in comparison to Japanese Yen and South Korea’s Won, the Indian rupee seems to have held up well with volatility depreciating 1.40 percent against the US dollar. Japanese Yen is down 8.78 percent against dollar, while South Korea’s Won has depreciated 8.53 percent, and Philippine’s Peso is down 5.85 percent, year-to-date.

However, among Asian peers such as Malaysian Ringgit and Hong Kong Dollar, the Indian Rupee’s has performance has been weak. Malaysian Ringgit and Hong Kong Dollar have appreciated against the US dollar by 3.51 percent and 0.43 percent, respectively.

Regular intervention by the central bank on both sides by selling dollar to prevent sharp depreciation and on some days buying dollars when rupee is appreciating, has helped the rupee remain less volatile through the year.

This trend was visible by the data which shows that the RBI was buying dollar in the first two months of the calendar year and for the rest of year seen selling dollars in the non-deliverable forward market.

According to the RBI data, the central bank has purchased dollars worth $9.974 billion in January and $9.694 billion purchase in February in forward market.

Similarly, foreign exchange reserves, which have been on a rise from the start of 2024, took a hit from mid-October, when the Indian rupee entered the 84 mark against the US dollar.

India’s forex reserves rose from $619.96 billion in January to $704.89 billion by the end of September, post which it fell to $658.09 billion on November 29 due to RBI intervention in the forex market initiated to defend the rupee.

However, the spending by the central bank was contained at $46 billion between October and December this year to defend rupee from falling. During this period, Indian rupee depreciated from 83.8013 against the US dollar on September 30, to 84.8575 against the greenback today.

Going ahead, currency experts say Indian rupee may touch 85 against the US dollar by the end of this month due to strong dollar and pressure on premiums in the forward market.