Market participants expect the rupee to appreciate to the 82 mark in the current calendar year given the healthy capital flows and reasonably higher balance of payment surplus.
 "Rupee least volatile in 20 years, likely to touch 82 against US dollar")
Sunainaa Chadha New Delhi
The Indian rupee is the least volatile in the last twenty years and has demonstrated resilience, currently trading at 82.95 against the US Dollar and now showing signs of a structural uptrend. Factors such as narrowing current account deficit, robust forex reserves, and favourable inflation disparities support this trajectory. While RBI intervention aims to maintain stability, the overall outlook suggests a potentially appreciating rupee in the years ahead, with projections of USD/INR reaching 78 by fiscal year 2026, according to a report by YES Securities.
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RBI’s persistent Intervention has been thwarting volatility, The Indian Rupee is the least Volatile in 20 years
The Indian Rupee seems to have bottomed around 83.5 against the USD and is due for a structural uptrend, reflected by the resilience in the currency over the past 12 months
“There has been front-running by foreign banks in Debt markets given the inclusion of India’s sovereign bonds in Global Indices during the next fiscal year. After a stable 2023, the Indian rupee started 2024 on a promising note and has turned out to be the best-performing Asian currency, despite the rise in the dollar index. Market participants expect the rupee to appreciate to the 82 mark in the current calendar year given the healthy capital flows and reasonably higher balance of payment surplus. However, RBI is largely absorbing the dollar inflows which can be manifested by the trend in rising FX reserves. Persistent interventions by the Reserve Bank of India to build FX reserves are restricting the appreciation of the Indian rupee,” said Hitesh Jain, strategist, Institutional Equities Research at YES Securities India.
Here are 5 reasons why YES Securities expects the rupee to appreciate to 78 against the US dollar by FY26:
Narrowing CAD has proven to be supportive for the rupee, with visibility of the Current Account turning into a modest surplus over the next two years
Growing FX Reserves and augmenting domestic manufacturing will ensure that India’s import cover remains within comfortable levels
Indian Debt Markets are seen receiving foreign capital inflows worth USD 100bn over the next 3 years. Notwithstanding the hefty inflows, FII ownership of Indian Sovereign Debt will be low, which will avert the risk of high volatility
FDI and Domestic Manufacturing: India’s focus on domestic manufacturing aims to draw more foreign direct investments, particularly with the global value chain moving towards Re-Shoring. This trend is expected to drive Foreign Direct Investments as a percentage of India’s GDP higher.
Inflation Dynamics and Monetary Policies: Historically, rupee trends have been shaped by inflation disparities between India and the US. However, with narrowing differentials and Indian inflation rates falling below the global average, the scope for INR depreciation diminishes. Furthermore, a probable alignment among major central banks on the reversal of hawkish monetary policies is anticipated to maintain stability in sovereign yield spreads, curbing significant USD upside against major currencies.
RBI Interventions: Reserve Bank of India (RBI) interventions play a crucial role in shoring up FX reserves to counter INR appreciation.
Persistent interventions by the Reserve Bank of India to build FX reserves are restricting the appreciation of the Indian Rupee
