Rupee expected to strengthen after March

Dollar selling signal by RBI to maintain rupee stability amid big fall in forex reserves

Analysts expect it to be stronger than current levels by the end of the current fiscal year. By the end of March, the rupee will touch 82.25. However, in the first quarter of the next financial year, the rupee may weaken slightly from the current position, as the Federal Reserve will continue to hike rates. Also, the dollar is strengthening due to a possible slowdown in global growth. The rupee is at a record low of 83.29 against the dollar.

In 2022, the rupee was at 82.74 with a decrease of 10 percent against the dollar. The local currency strengthened significantly against the dollar during the first 3 weeks of 2023 as the cycle of US rate hikes eased inflation. Last month saw a slow recovery in the rupee.

However, the local currency situation reversed after this. Fears that the US central bank will keep rates higher for longer, in addition to the Hindenburg report's allegations against the Adani Group, also hurt the rupee as foreign investors sold Indian stocks as the company's shares fell. However, seasonal demand for the local currency may benefit the rupee over the next 2 months as corporates close their accounts at the end of the financial year.

Analysts said, 'We think the rupee's outlook has weakened. Interest rates in the US seem to be near their peak now. The dollar is weakening. Some analysts also said that a domestic rally will favor the rupee amid a lower current account deficit and global economic weakness in the coming fiscal. The Reserve Bank has projected GDP growth of 6.4 percent for the next financial year, while the IMF has projected GDP growth of 2.9 percent in 2023.

A lower current account deficit and stable global commodity prices led to an overall improvement in the balance of payments. FPI is expected to be marginally more positive. The US Federal Reserve has raised interest rates, narrowing the gap. The narrowing of interest rate spreads in the US and India has made buying local properties less attractive for foreign investors.

Downward pressure on the rupee will remain low as the spread between policy rates between India and the US is historically low, analysts said. Current account deficit is likely to remain low in FY24. However, this improvement is expected to be limited. Meanwhile, in the week ending on February 10, there has been a huge decline in the forex reserves of the country by 8.31 billion dollars. The decline appears to be due to money market intervention by the Reserve Bank of India to stabilize the rupee amid massive sell-off by foreign investors in the Indian equities market. At the end of the week of February 10, forex reserves fell for the second week in a row to $566.94 billion. Forex reserves posted biggest weekly decline in 11 months. Reserves figure of $566.94 billion is at a one-month low.

Further pressure on the rupee cannot be ruled out as the Federal Reserve may continue to hike interest rates due to strong employment figures in the US. It is believed that dollars have been sold by the Reserve Bank for this reason. The gold reserve of the country also decreased by 91.90 million dollars to 42.86 billion dollars. Foreign investors have withdrawn four billion dollars from Indian equities in the last one year ending February 10.