The Indian rupee has been under significant pressure due to the U.S. dollar’s recent strength. After the Federal Reserve indicated fewer rate cuts for next year, global currencies felt the impact. Emerging markets, including India, faced challenges stabilizing their exchange rates.
Last week, the rupee fell to a record low of 85.10 against the dollar. It marked the seventh consecutive weekly decline. Interventions from the Reserve Bank of India (RBI) helped limit losses, but regional currencies fell by up to 1.2%.
Government bond yields in India are closely tracking U.S. Treasury movements. The benchmark 10-year bond yield rose by six basis points last week, ending at 6.7891%. The Federal Reserve’s hawkish stance on rate projections for 2025 has tightened liquidity conditions globally.
Experts believe Indian yields will hover between 6.75% and 6.80% this week. Alok Singh, a treasury expert, highlighted the influence of U.S. bond yields on Indian rates.
India’s foreign exchange reserves have dropped significantly, standing at $652.9 billion as of mid-December. This marks a near six-month low, with a decline of $52 billion since September. The Reserve Bank has been using these reserves judiciously to stabilize the rupee.
Market analysts predict the rupee will trade between 84.90 and 85.40 this week. According to Abhishek Goenka of IFA Global, the RBI may continue cautious interventions to manage the currency’s depreciation.
High inflation remains a critical concern for India’s economy. According to the RBI’s rate-setting panel, aligning inflation to the 4% target is essential for sustained growth. Earlier this month, the central bank maintained its key interest rate but injected liquidity into the system by reducing the cash reserve ratio by 50 basis points.
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