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Anticipated Appreciation of the Indian Rupee Against the U.S. Dollar

Anticipated Appreciation of the Indian Rupee Against the U.S. Dollar

Prediction of Rupee's Modest Appreciation

A newly published Reuters survey anticipates a minor appreciation of the Indian Rupee against the U.S. Dollar in the forthcoming year. This conservative outlook comes despite the robust Indian economy as the Reserve Bank of India (RBI) continues to manage currency markets.

Early into the new year, the Rupee has registered a minor gain of 0.2% versus the Dollar, driven by dwindling demands for early rate cuts from the U.S. Federal Reserve, consequently buoying the Dollar.

An aggregate of opinions from 42 forex analysts surveyed by Reuters between February 2nd and 6th predict a marginal strengthening of the Rupee from Tuesday's exchange rate of 83.05 to the Dollar. The Rupee is expected to strengthen to 83.00 in a month and down to 82.84 within the next three months.

Rupee's Performance and Future Expectations

Despite demonstrating a stronger performance than its major Asian counterparts thus far this year, it's anticipated that currencies which include the Chinese Yuan, Thai Baht and Korean Won, would appreciate more by late January 2025.

ANZ's forex strategist, Dhiraj Nim, voiced his opinion on the matter; "From short-term viewpoints, the Rupee is expected to trade within a narrow range. There's a mild upward bias for USD/INR. While we may see a modest Rupee depreciation for now, over the long term, supportive balance of payments and gradual Dollar soften will encourage gradual Rupee appreciation."

Room for Rupee Strength

Despite pushbacks from Fed policymakers concerning early interest rate cuts, the long-awaited shift in the Dollar's hegemony over other currencies is being delayed. However, there is still a generalized expectation of RBI's rate cut within the year, and this could maintain the relative strength of the Rupee.

Asia's third-largest economy, India, is poised to maintain its status as the fastest-growing among the giant economies. This prediction also lends the Rupee some support. Nevertheless, RBI's expected persistence in utilizing Foreign Exchange reserves, presently estimated at $616.7 billion, to combat volatility, will constrain profit margins.

Looking Forward

Forecasts anticipate that the Rupee will appreciate more than 0.6% to 82.50 against the dollar in six months and further up to 82.40 in a year. These estimates vary, with the 12-month horizon ranging between 79.00 and 84.50.

India has found itself the recipient of considerable inflows to its bond markets in recent times courtesy of foreign investors. This significant foreign capital influx was spurred by JPMorgan's decision to encompass Indian debt in its indices.

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