Rupee may depreciate to 84.5 against US dollar by end of December

The Indian rupee is likely to depreciate further against the US dollar through the end of 2024.

This is due to the continued strengthening of the greenback, combined with the weakening of the Chinese yuan, which is expected to keep pressure on the Indian currency.

According to the median forecast of the Business Standard poll, the rupee is expected to be trading at 84.5 per US dollar by the end of December this year.

The Reserve Bank of India (RBI) is expected to be active in the currency market, which will cap the losses.

IDFC First Bank sees the Indian unit touching 85 per dollar during this period.

It settled at 84.41 per dollar on Thursday (November 14).

The rupee has already depreciated 0.38 per cent against the dollar in November.

The domestic currency, which remained largely stable till September, came under pressure following an interest rate cut by the US Federal Reserve, and Donald Trump s resounding win in the US presidential election.

The combination of lower Balance of Payment surplus in FY25, dollar strength and the yuan weakness will maintain depreciation pressures on the rupee.

Balance of payment surplus is negative in Q3FY25 due to the rise in trade deficit and the recent FPI outflows, said Gaura Sen Gupta, chief economist at IDFC First Bank.

After the US election dollar strength has endured, as the Trump administration policies are expected to be inflationary with higher tariffs and wider fiscal deficit.

The market has priced in much of the potential policy changes with the Fed rate cut cycle expected to be shallower,  Sen Gupta said.

RBI intervention has focused on limiting two-way volatility in USD-INR, rather than defending a level.

From October to November 8, RBI has net sold $15.5 billion to smoothen the pace of depreciation in the rupee, she added.

India s foreign exchange reserves stood at $675.7 billion on November 8.

It declined $29 billion in six weeks as the rupee has hit fresh lows during most of those trading sessions, prompting the central bank's intervention.

Market participants said that while the RBI interventions in the foreign exchange market have been more gradual than usual, the central bank is expected to continue supporting the rupee by selling the dollar.

RBI Governor Shaktikanta Das recently said the central bank s intervention in the foreign exchange market was to curb undue volatility and that it does not target any level or a range.

Additionally, the ongoing inclusion of Indian bonds in the JP Morgan Emerging Market Bond Index is expected to help mitigate outflows from foreign portfolio investors in the debt market.

The 84.5 per dollar level is to be tested first.

Stronger dollar and volatile FPI flows are expected to be the norm as we near the formal entry of Donald Trump as president.

The RBI s action is also critical as we have seen limited intervention post-84 level being breached,  said Madan Sabnavis, chief economist at Bank of Baroda.

The dollar index rose to 106.7 per cent on Thursday after the US CPI data.

The dollar index measures the strength of the greenback against a basket of six major currencies.

The US inflation has remained stubbornly high, with the latest data showing a 2.6 per cent year-over-year increase in the headline CPI and a 3.3 per cent rise in core CPI.

The yield on the benchmark 10-year US Treasury bonds rose by 20 basis points so far in November.

Meanwhile, the rupee outperformed its Asian peers in November so far and is expected to remain one of the best performing Asian currencies.

We expect the rupee to outperform amid broad dollar strength.

Even after Trump's election, while other Asian currencies have weakened anywhere between 1 per cent to 5 per cent, the rupee has just weakened 0.4 per cent against the dollar, said Abhishek Goenka, chief executive officer at IFA Global.

The movement in the yuan is the biggest factor that would impact the rupee.

At present, we are at 11.65 on CNHINR.

If CNHINR drops below 11.50, then from there on we may see RBI become more tolerant of rupee depreciation, he added.

The Indian unit has depreciated by 1.2 per cent in the current financial year so far.

While in the current calendar year, it has depreciated by 1.5 per cent.