Mumbai: The rupee is expected to weaken further in the coming months as Trump’s presidency strengthens the dollar at least in the short term, experts said, adding that central bank intervention in currency markets is likely to ease.
In 2024, the local currency depreciated by 2.9%, but the depreciation was less than that of some other Asian currencies. according to Burundi Data showed that the yuan fell 3% against the US dollar over the same period.
Experts say the lower depreciation so far compared to other currencies also gives room for further adjustments. While some believe the rupee will touch the 87 level in the next three to four months, others believe the rupee will remain stable after 86.2. It closed at 85.75 on Thursday.
Kanika Pasricha, chief economic adviser at Union Bank of India, said: “There is clear depreciation pressure on the rupee, which can be seen from the real effective exchange rate overvaluation of about 8%.” “…In the recent past, the U.S. dollar has been undervalued. With the index soaring, we have been relatively devalued.
The real effective exchange rate (REER) is the inflation-adjusted, trade-weighted average of the domestic currency relative to the currencies of its trading partners.
The euro has depreciated by more than 5.3% against the dollar and the yuan by 2.7% against the yuan since November 5, but the rupee has depreciated by about 1.8%, Pasricha said, referring to the fall in value after Donald Trump won the U.S. presidential election. Currency trends. Trump has promised to impose 60% tariffs on Chinese goods and implement loose fiscal policies, but whether he will deliver on these measures will be clearer when he takes office on January 20 or later.
“In the long term, from an economic fundamentals perspective, the rupee remains a depreciating currency. This is because of two factors: we still have current account and fiscal deficits, although it is in consolidation mode,” Pasri Cha said he expected current account dynamics to worsen in FY25.
Also in 2023, the yuan (2.94%) has depreciated more than the rupee (0.57%).
“The rupee usually depreciates…not significantly for two years but then next year. This may look like one of those periods where the rupee will move significantly,” said Abhishek, founder and CEO of IFA Global, a financial and foreign exchange advisory firm. Goenka said.
Goenka said the Reserve Bank of India (RBI) had earlier intervened to manage the rupee, which was slightly overvalued compared to other Asian currencies. “This time, when we saw massive outflows from the stock market, the RBI intervened aggressively, but we used our reserves of about $50-60 billion to defend the rupee,” Goenka said.
According to data from the Reserve Bank of India, India’s foreign exchange reserves reached a high of US$704.9 billion on September 27, but had shrunk to US$644.4 billion as of December 20. Shaktikanta Das, then governor of the Reserve Bank of India, said on December 6 that foreign exchange reserves were “pretty strong” and that “the drain on reserves that has occurred over the past few months is partly and largely due to the value loss”.
Overseas investors are also wary of Indian stocks. Foreign portfolio investors bought a net $124 million worth of Indian stocks in 2024, down from $20.7 billion in 2023, NSDL data showed. Experts say they will keep a close eye on the performance of FPIs in January to see whether these investors remain cautious or whether funds will return to the Indian market.
Others, meanwhile, do not expect the RBI to watch the rupee weaken.
“We do not think the RBI will ease up on its intervention in the FX market to curb volatility. With Trump coming to power on January 20, we will see the rupee depreciate further to 87 levels in April-May,” Kotak Securities Currencies said Anindya Banerjee, Vice President, Derivatives and Interest Rate Derivatives.
“It will depend on what his announcement is.”