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The Indian rupee is likely to remain under pressure in the short term, trading within a range of 84-84.5 per US dollar, as per a report by Bank of Baroda.
The report attributes this temporary weakness in the rupee to two key factors: foreign portfolio investor (FPI) outflows and the strengthening of the US dollar. It stated, "The Indian rupee is likely to remain under pressure in the near term. This is due to two inter-related factors - FPI outflows and dollar strength."
Despite these immediate challenges, the report expressed confidence in the rupee's prospects over the medium to long term, emphasising that India's strong macroeconomic fundamentals position the country well to navigate the current scenario.
According to ANI, the report highlighted that India is better equipped this time to address capital outflows compared to previous instances. It noted that the country's external and fiscal deficits are under control, while economic growth remains robust.
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Additionally, the Reserve Bank of India (RBI) has maintained a healthy foreign exchange reserve exceeding USD 675 billion, which is expected to be deployed strategically to stabilise the domestic currency, according to the report.
As per ANI, the recent outflows of FPIs are considered a temporary phenomenon. The report projected a positive turnaround in FY25, forecasting net FPI inflows of USD 20-25 billion during the financial year.
On the trade front, the report noted that India's trade deficit rose in October 2024. However, strong services exports and remittances are likely to help keep the current account deficit (CAD) in check, ANI reported.
The report also underlined India's resilience, citing solid macroeconomic indicators that provide a foundation for stability. While short-term pressures may persist, the medium to long-term outlook for the rupee remains optimistic.
In summary, Bank of Baroda's report, as per ANI, emphasised that India is in a much better position to manage the ongoing currency challenges, supported by robust economic growth, controlled deficits, and strong foreign exchange reserves.
(With inputs from PTI)
