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The Indian rupee is likely to see a strong recovery once current market uncertainties settle down said a report by the State Bank of India (SBI).
The report noted that while the Dollar Index (DXY) may still have some momentum left, SBI drew parallels with the 2016-2017 period, when a strong rebound in the rupee was observed after a phase of volatility. It said, "Dollar Index might have some run off left.....However like in 2016-2017, a strong currency bounce back for rupee is clearly apparent once the dust settles down." Dollar Index (DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies The report highlighted that the Dollar Index might continue its upward trajectory due to several factors, including a reversal of global financial flows toward the United States. Additionally, the dominance of "Big Tech" companies backing pro-economic growth policies, such as Donald Trump's "Make America Great Again" rhetoric, adds to the dollar's strength. However, the rising DXY is creating challenges for emerging market (EM) currencies. For example, the Euro Dollar parity is already being factored into calculations by major global banks. This trend, if continued, could further weaken EM currencies like the rupee. The report noted that US benchmark yields remain volatile and could harden further if inflation rises, especially due to the impact of tariffs on import prices. Additionally, uncertainties in the US job market and a potential "Tariff-Tax spiral" are contributing to the pressure on global currencies. On the domestic front, SBI pointed out that India's currency in circulation (CIC) has increased by Rs 78,000 crore in the current fiscal year, reaching around Rs 35.9 lakh crore, approximately 11 per cent of the country's GDP. Furthermore, the Reserve Bank of India (RBI) has actively intervened in the forex market, with net forex sales crossing Rs 1.7 lakh crore as of November 2024. The report estimates this figure has grown further, reflecting efforts to stabilize the depreciating rupee. It said, "Net sale of Forex is Rs 1.7 lakh cr till Nov'24 and we believe the same would have comfortably passed Rs 1.7 lakh cr (incrementally) at least as on date given the decelerating rupee." While the rupee has faced significant headwinds due to global factors, SBI believes the worst may soon be over. A recovery in the rupee's value is expected once global economic uncertainties subside and market conditions stabilize. This outlook provides a glimmer of hope for India's currency, which has been navigating a challenging macroeconomic environment. (ANI)
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