Rupee may slump to 85 as US dollar firms up, Indian economy slows down

Rupee

The rupee, which has been under pressure since the last few months, is expected to depreciate further weighed down by a strong dollar and weaker-than-expected economic growth, currency experts said.

“USDINR is expected to head north with an inherent bullish trend in the dollar backed by a stronger US economy. The pair is likely to hover around 85 in the coming months,” said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.

The Indian rupee has to depreciate around 27-30 paise against the US dollar to touch 85 against the greenback.

The Dollar Index, which measures the value of the dollar against the basket of six currencies, surged around 3 percent in the last one month. The dollar index (DXY) is trading at 106.26.

On December 4, the rupee hit a record low on growth worries, ending at 84.74 against the dollar. It was the Indian currency's lifetime closing low, down from 84.68 in the previous session. The rupee was unable to benefit from gains in most of its Asian peers, including the offshore Chinese yuan, which rose 0.2 percent to 7.28 after hitting a one-year low on Tuesday.

The depreciation of the rupee is a cause for concern for the Reserve Bank of India (RBI) because of its intervention in the currency market, which lead to fall in foreign exchange reserves.

The rupee depreciated after India’s GDP growth decelerated to its seven-quarter low of 5.4 percent in the September quarter, data released on November 30 showed. The economy grew at 6.7 percent in the previous quarter and 8.1 percent in the year-ago period. Outflows from the Indian equities also put pressure on the rupee.

Going ahead, Shinhan Bank Vice-President Kunal Sodhani said, domestic equity flows are an important aspect to be watched out as October and November flows have been negative. Additionally, after a lower-than-expected GDP data and elevated inflation and geopolitical risks still prevailing, rates trajectory from the RBI will be important to watch out for.

Sodhani added that Donald Trump will be official on the seat of being the president of the United States on January 20, 2025 and there after fundamental reforms and budgetary elements will be under scanner.