In April, the Indian Rupee remained mostly unchanged but briefly hit a record low due to outflows of funds by foreign portfolio investors and the strength of the US dollar. Throughout May, it continued to trade in a tight range against the US dollar, with minimal FPI inflows and dollar demand from oil companies. The Rupee closed at 83.50 per US dollar on Friday, supported by RBI’s intervention in the foreign exchange market. The RBI intervenes to prevent steep depreciation in the rupee by selling dollars and maintaining orderly market conditions.
The Indian Rupee was the least volatile among its emerging market peers in the financial year 2023-24, hovering between Rs 82-83.5 per US dollar. It also exhibited the lowest volatility in three years. The Monthly Economic Review report of the Department of Economic Affairs highlighted that robust foreign inflows and comfortable trade deficits are expected to keep the rupee within a comfortable range in the future. Despite challenges such as monetary policy tightening by central banks and the war in Ukraine affecting crude oil prices, the Indian currency has shown resilience in the face of global economic fluctuations.
In 2022, the Indian Rupee faced significant depreciation, dropping over 11% against the US dollar. Various factors such as inflation containment measures by central banks worldwide, the Ukraine conflict impacting oil prices, and the strengthening of the US dollar index contributed to the Rupee’s decline. By mid-October, the Rupee hit an all-time low below the 83-mark against the US dollar. The RBI’s intervention in the foreign exchange market, focused on maintaining market stability and preventing excessive volatility, has played a crucial role in supporting the Rupee amidst challenging global economic conditions.
Looking ahead, experts believe that the Rupee is likely to remain range-bound in the near term, supported by RBI’s intervention and overall market conditions. While the strength of the US dollar and FPI outflows continue to pose challenges, the Rupee’s stability in the face of these factors reflects the resilience of the Indian economy. As foreign inflows increase and trade deficits remain manageable, the Rupee is expected to maintain a comfortable range against the US dollar. The RBI’s proactive approach to managing the Rupee’s volatility and supporting market stability is likely to play a key role in maintaining the Rupee’s value in the global currency market.
