The US dollar-Indian rupee exchange rate is expected to fluctuate between Rs 82 and Rs 84 during the second half of FY24, according to a report by CARE Ratings. The credit rating agency stated that the rupee breached the Rs 83 level against the dollar recently but its decline was curtailed by interventions from the Reserve Bank of India (RBI) across various markets. These interventions included spot, non-deliverable forward (NDF), and futures markets.
CARE Ratings projected a fluctuation range of Rs 82 to Rs 84 for the USD/INR exchange rate in the second half of the fiscal year 2023-24. The agency expects the exchange rate to gradually gravitate toward the lower boundary of this range, which represents a shift from their previous forecast of Rs 81 to Rs 83.
The report attributed the expected fluctuation to the US Federal Reserve’s hawkish stance communicated during the September meeting. This stance is expected to sustain elevated yields in the US Treasury market and maintain strength in the US Dollar Index in the short term. However, CARE Ratings anticipates that US Treasury yields will moderate subsequently as the Federal Reserve signals that interest rates have peaked. Market participants are also likely to re-evaluate their interest rate expectations when signs of weakness in the US economy become more pronounced in broader economic indicators.
In addition, the report mentioned that the weakness in the Chinese Yuan is expected to persist until China unveils substantial stimulus measures. This is likely to exert downward pressure on the currencies of other emerging Asian markets.
CARE Ratings also discussed the outlook for oil prices, stating that tight supply conditions are projected to keep prices elevated in the near term. However, the agency anticipates a moderation in oil prices in the absence of substantial stimulus from China and as the pace of economic growth in the United States begins to slow.
Regarding India’s current account deficit, CARE Ratings forecasted that it will remain manageable in FY24. The report mentioned that Foreign Portfolio Investment (FPI) inflows are poised for recovery, driven by robust economic fundamentals and the eventual moderation of US Treasury yields and the US Dollar Index.
The report also highlighted the role of RBI interventions in mitigating rupee volatility and imported inflation. It expects these interventions to persist.
In conclusion, CARE Ratings expects the US dollar-Indian rupee exchange rate to fluctuate between Rs 82 and Rs 84 during the second half of FY24. The agency discussed various factors affecting the exchange rate, including the US Federal Reserve’s stance, Chinese Yuan weakness, tight oil supply conditions, and India’s current account deficit and FPI inflows.
