- RBI's Role: The RBI is using its $700 billion forex reserves to manage rupee volatility.
- Market Intervention: The RBI’s interventions account for 1.6% of India's GDP, slightly higher than previous crises.
- Rupee Performance: Despite falling 1.5% this year, the rupee is one of the least volatile currencies in Asia.
- Global Factors: US policies, global tensions, and market outflows are influencing the rupee's performance.
- Overvaluation Concerns: The rupee is overvalued by 7.5%, suggesting a possible gradual depreciation.
- Future Projections: Experts predict an 8-10% depreciation of the rupee in the coming years.
India is working hard to keep the rupee stable to protect its economy from global financial risks, according to the Reserve Bank of India (RBI). In its latest monthly bulletin, the RBI explained that the value of the rupee is mainly determined by market forces like supply and demand, reflecting the country’s overall economic health.
The RBI addressed concerns about whether it’s over-intervening in the foreign exchange market to keep the rupee stable. To manage large fluctuations, the RBI has used its reserves, which are nearly $700 billion, to help keep the rupee among the least volatile currencies globally.
RBI officials noted that the size of India’s economy should be considered when evaluating these interventions. Between February and October 2022, the RBI’s actions in the market were about 1.6% of India’s GDP, slightly higher than previous crisis levels. Governor Shaktikanta Das reaffirmed that the RBI’s reserves are used only after fulfilling the country’s financial needs, acting as a cushion during tough times.
The RBI also assured that its strategy has not hurt India’s trade competitiveness. Instead of relying on an undervalued rupee, India is focused on improving the quality and technology of its exports.
While the rupee has fallen by 1.5% against the US dollar this year, it has performed better than most other Asian currencies. The rupee’s stability is mainly due to the RBI’s timely market interventions, which have helped limit its decline. However, India’s foreign exchange reserves fell by $3.2 billion, reaching $654.86 billion as of December 6.
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Experts believe that the rupee may gradually weaken further, as it is considered overvalued by 7.5% against the dollar. The Real Effective Exchange Rate (REER), a measure of currency value, stood at 107, suggesting the rupee is overvalued compared to its trading partners.
Despite global challenges like US policies, tensions in the West, and market outflows, the rupee’s depreciation has been slower than other Asian currencies. Notably, the Japanese yen and South Korean won have seen much larger declines this year.
The RBI’s continuous intervention has helped reduce the rupee’s volatility, keeping it more stable than many emerging market currencies. Moving forward, experts predict that the rupee could depreciate by 8-10%, depending on global changes, especially if the US policies shift under President Trump’s second term.
Key Insights on the Indian Rupee
| Factor | Details |
|---|---|
| Rupee Performance | Depreciated by 1.5% against the US Dollar in 2024, but stable compared to other Asian currencies. |
| RBI’s Forex Reserves | Nearly $700 billion, used to manage rupee fluctuations. |
| Interventions & GDP | RBI’s market interventions were 1.6% of GDP between February and October 2022. |
| Overvaluation | Rupee overvalued by 7.5%, as per the Real Effective Exchange Rate (REER). |
| Global Factors | US policies, geopolitical tensions, and market outflows are affecting the rupee. |
| Future Projections | Experts predict an 8-10% depreciation of the rupee in the near future. |
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