The Indian rupee is forecasted to weaken further against the U.S. dollar. According to a Reuters poll of FX strategists, the rupee will likely breach 85 per dollar within six months. This comes as the Reserve Bank of India (RBI) continues its efforts to mitigate the rupee's decline. Since October, the RBI has spent nearly $50 billion from its FX reserves to support the currency. However, the rupee recently hit a record low of 84.74 per dollar.
Several factors are contributing to the rupee's weakening trend. Externally, the dollar has strengthened by nearly 6% due to inflation expectations in the U.S., driven by proposed tariffs. Domestically, India's economic growth slowed sharply to 5.4% annually, triggering concerns about monetary policy.
Furthermore, the rupee’s trade-weighted real effective exchange rate (REER) indicates overvaluation by 7%. This suggests room for further adjustments by the RBI.
The Dec. 2-4 Reuters poll reveals that the rupee may trade at 84.85 per dollar in three months and 85.12 in six months. Analysts highlight two main reasons for this trajectory: external pressures and a deteriorating domestic macroeconomic mix.
Foreign investors have also pulled over $13 billion from Indian markets, adding to the pressure on the currency. Despite these challenges, experts believe government spending and slight rate cuts could help counteract some of the downturn.
As the fastest-growing major economy, India remains resilient. However, maintaining a weak currency may be part of the strategy to boost exports and manage economic headwinds.
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The Indian rupee is forecasted to weaken, breaching 85 per dollar in six months. Learn more about factors driving this trend.
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