For the near term, the Indian rupee is seen to remain under pressure, trading between 84 and 84.5 per US dollar, said a report by Bank of Baroda.
The report underlines two major reasons for the perceived weakness of the rupee: FPI outflows and the strength of the US dollar. It further said that both these factors are interrelated. And this is why the rupee is under pressure at the moment.
It remarks that against these challenges, India has sounder macroeconomic fundamentals to give the country a footing to manage these difficulties. The report further underlines that although capital flight is not new to India. The country is in an infinitely better position to cope with the situation this time.
Both the external and fiscal deficits of India are under control. And the growth momentum of the economy also remains strong. The Reserve Bank of India has also gathered over USD 675 billion in foreign exchange reserves. Such a large reserve provides ammunition to the RBI for stabilizing the rupee at will.
This assumes that FPI outflows of late are temporary. The report also projects a positive turnaround in FPI inflows during the financial year FY25. According to the report, net inflows may rebound quite strongly in a range of USD 20-25 billion. This surge of FPI inflows will no doubt provide the much-needed prop for the rupee and stabilize the currency in the medium term.
The trade front was showing an increased trade deficit for India in October 2024, indicating higher imports. But strong services exports and constant remittances from abroad will help offset this increase in the trade deficit. In turn, the current account deficit will remain under control and provide further stability to the overall economic situation.
On the whole, the Bank of Baroda report talked about resilient India with strong economic fundamentals. Though in the near future, the rupee may stay under pressure, the medium-to-long-term outlook remains positive, with the country well-equipped to navigate challenges ahead.
ANI
