Despite reaching new lows in CY24, the rupee beat the majority of Asian currencies because the Reserve Bank of India (RBI) intervened promptly. Over the year, it lost 1.5% of its value about the US dollar. The dollar index, which measures how the US dollar performs about a basket of six major currencies, is down 0.94% this year.
After the Singaporean and Hong Kong dollars, the rupee was the third most stable Asian currency the US dollar. Forex merchants generally credited this stability to the RBI’s actions, which helped stop the rupee’s devaluation.
However, because the rupee is overpriced by 7.5% compared to the dollar and most other currencies have declined, market participants think the RBI may permit a gradual rupee depreciation. The rupee continued to be overpriced in comparison to its Asian counterparts, even though it hit new lows. Overvaluation is indicated by a number above 100, and the rupee has been trading above this standard for the past ten years.
The central bank’s foreign exchange reserves have drastically decreased due to the RBI’s ongoing dollar-selling market intervention. According to RBI statistics issued on Friday, India’s foreign exchange reserves fell $3.2 billion to $654.86 billion as of December 6, a more than five-month low.
The South Korean Won and the Japanese Yen, two significant Asian currencies, had declined by 7.5% and 8.8%, respectively. Notably, during CY 2024, the value of every G10 currency—aside from the British Pound (GBP)—depreciated by more than 4%.
With the rupee declining by just 0.5% vs the dollar in 2023, the currency market saw the least volatility and its most stable performance since 1994.
According to the State Bank of India’s research paper, the rupee may weaken by 8–10% in Trump 2.0. According to a forex trader, the future direction of the rupee and the RBI’s ability to control market volatility would probably depend on new US policies.
