On Friday, the Indian currency closed at another low of 85.77 against the dollar. THE WEEK, in an earlier analysis, had predicted that the depreciation of the rupee would continue in the near term and may even reach the mark of 85 in the near future, but it has fallen even further to reach 85.77. Reports point out that due to this continued depreciation, the foreign exchange reserves have also fallen and stood at an eight-month low of USD 640.3 billion as of December 27. One of the major factors that reports point out is that this is also due to the drop in the Chinese currency, the Yuan, which weakened past the 7.3 mark, plus the further strengthening of the dollar.
Experts have pointed out that the rupee may depreciate further and may even reach figures of 86 or 87 in the near future. Experts are also observing as to what kind of impact the US job report have as it is expected next week. Then, there are rising crude oil prices, which may further put pressure on the Indian rupee. As such, the weakened rupee has raised the cost of imports and has likely inflation. The continuous selling spree of Foreign Institutional Investors (FIIs) is contributing to the depreciation of the rupee.
Experts have pointed out that the rupee can be stabilized provided there is stronger economic growth in India and better exports from India. If the US economy faces a downturn, then it might weaken the US dollar and might help in curtailing rupee depreciation, but such factors are currently not likely to happen. A strong US economy will make the dollar stronger, and many currencies, including the Indian rupee, will feel pressure in the near future. It is expected that the US markets will do well in the near term, but that might further hurt the Indian rupee.
The depreciating rupee will have challenging effects, and Indian businesses will find it more costly to obtain money overseas if the rupee further depreciates, which will also lead to lower investor confidence. Hence, stronger economic growth and better exports are the need of the hour to revive the Indian Rupee. It is a wait-and-watch policy for market analysts to see how things will shape up in the US economy after the new Trump regime takes over. However, the present upward movement in the US economy is likely to continue, and it may not be any time soon that the rupee will revive much.
In an earlier analysis in THE WEEK, it was mentioned that the RBI is likely to intervene in the dollar market to provide the rupee with some temporary strength, although broader economic factors are still likely to keep the rupee under pressure. Decisions regarding the Cash Reserve Ratio (CRR) and other measures from the RBI could play a role in influencing market sentiment and liquidity, but they may not be enough to reverse the rupee's overall weakness, experts pointed out.
