Indian Rupee Shows Resilience Amid Global Currency Fluctuations: Bank of Baroda Report

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Mumbai: In June, the Indian rupee exhibited notable volatility, primarily influenced by electoral dynamics, outflows from Foreign Portfolio Investors (FPIs), and an uptick in oil prices, all of which bolstered the US dollar against the rupee, as per a report from Bank of Baroda.

Despite these challenges, the report remains cautiously optimistic, foreseeing stabilization for the Indian rupee. This anticipated stability hinges on expected steadiness in domestic markets and a resurgence in FPI inflows, projecting the rupee to maintain a trading range of 83.3 to 83.6 against the US dollar.

The report underscores that major global currencies depreciated against the US dollar in June. Specifically, the dollar index (DXY), which gauges the dollar against a basket of currencies, climbed by 0.8% during the month, reversing its previous month’s loss of 1.5%.

“The movement in global currencies was driven by a dollar rebound. The DXY index, measuring the dollar’s strength against a basket of currencies, rose by 0.8% in Jun’24, reversing the 1.5% decline from the previous month,” the report stated.

Examining the Indian rupee’s performance, the report notes a marginal 0.1% depreciation in June, with the rupee settling at 83.57 against the US dollar. This depreciation occurred despite earlier expectations of a stronger dollar.

Furthermore, the report delves into India’s trade dynamics in May 2024, which witnessed a widening trade deficit. This expansion was primarily fueled by imports outpacing exports. While exports surged by 9.9% year-on-year, driven by increases in both oil and non-oil exports, import growth moderated to 7.7%, partly due to reduced gold imports. Notably, there was an uptick in imports of capital goods and transport equipment, while electronic goods imports slowed down.

Looking ahead, the report anticipates that the pressure on the Indian rupee will ease, forecasting a trading range of 83.3 to 83.6 against the US dollar. This expected relief is predicated on factors such as stability in domestic markets, FPI inflows, and potential weaknesses in the US dollar.

However, the report cautions that renewed volatility in oil prices could exert further depreciation pressure on the Indian rupee.

“In contrast, renewed volatility in oil prices will add to depreciation pressure on INR. With forex reserves standing at USD 655.8 billion, India’s Reserve Bank has ample buffer to navigate through this volatility. Overall, we expect the INR to trade within the range of 83.3-83.6 per dollar in Jun’24,” the report concludes.

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