FY24 Currency Outlook: Indian Rupee to trade in the range of 82-84 against US dollar - Report

The Indian Rupee (INR) is expected to trade in the range of 82-84 as compared to the US Dollar (USD) in the next financial year 2023-23 (FY24), a report released by Bank of Baroda said, adding that the local currency’s movement will mainly be determined by both global as well as domestic macro fundamentals going forward.

On a domestic level, India’s current account deficit (CAD) will be the key factor impacting USD/INR, while global triggers like FPI flows and oil prices will also be important for the exchange rate going forward, Aditi Gupta, an economist at Bank of Baroda said in a report.

Also Read: India has sufficient forex reserves to finance CAD, manage rupee volatility, says Economic Survey 2023

According to Gupta, the US Federal Reserve policy will also be the most important driver of USD/INR in the next financial year.

With the Fed widely accepted to hike rates by another 50 basis points (bps) in the next two meetings, the gap between US and India policy rates may narrow to a record low of 125 bps, she added.

Similarly, the economist expects CAD to be in the range of 3-3.5 per cent in the current financial year and this will likely narrow to 2.5-3 per cent of GDP in FY24, which would provide some comfort to Indian Rupee at the margin.

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She also estimates that the FPI flows may remain muted in FY24, led by the elevated Fed rates and China opening up and this will have a negative impact on the rupee.

“On a quarterly basis, we see USD/INR inching towards 82.5/$ in Q1, 83/$ in Q2 as the Fed rate hikes are materialised, and also see the rupee inching closer to the 84/$ mark, by the end of FY24. However, a smaller CAD and favourable growth differential will lend some support to INR.” Gupta noted.

Also Read: Rupee least volatile among Asian currencies, reflects resilience of economy: Shaktikanta Das

Earlier in February, the Reserve Bank of India Governor Shaktikanta Das had said that the “rupee has remained one of the least volatile Asian currencies in 2022 as well as 2023 so far.”

The depreciation and the volatility of the rupee in the current phase of multiple shocks is far lower than during the global financial crisis and the taper tantrum, Das said. "In a fundamental sense, the movements of the rupee reflect the resilience of the Indian economy," as per RBI Governor.