Indian Rupee Rally May Be Short-Lived Amid Monetary Easing
Key Points:
* Indian rupee surged on Tuesday, marking its strongest one-day gain since March 2023.
* Analysts forecast a potential decline to 88.8 per dollar by mid-2025 and 89.50 by December.
* Monetary easing and rising global volatility may limit any sustained strength.
* Reserve Bank of India reportedly intervened to curb speculation, but analysts expect support to diminish.
* US dollar remains strong, potentially weighing on the rupee.
* Foreign investors have withdrawn funds from Indian equities this year, adding to concerns.
* Tight liquidity in India may limit the central bank's intervention.
Overview:
The Indian rupee's recent surge caught traders by surprise. However, analysts anticipate that gains may be short-lived due to anticipated monetary easing and heightened global uncertainty.
Analysts' Forecasts:
DBS Bank predicts a depreciation to 88.8 per dollar by mid-2025, while IDFC First Bank forecasts a decline to 89.50 by December.
Central Bank Intervention:
The Reserve Bank of India reportedly intervened to suppress speculation, with some traders estimating $11 billion worth of intervention over two days. However, analysts believe such support is unlikely to continue on the same scale.
Monetary Easing:
India's inflation eased in January, raising expectations for further rate cuts. This could weaken the rupee as it reduces the attractiveness of Indian assets for foreign investors.
External Factors:
The stronger US dollar, combined with the withdrawal of foreign funds from Indian equities, could put downward pressure on the rupee.
Outlook:
Despite the recent rally, analysts generally remain cautious on the rupee's long-term outlook. Monetary easing, global volatility, and the continued strength of the US dollar are expected to weigh on its performance.