There is a possibility of a strong rise in the rupee when the market stabilizes – SBI report
NEW DELHI New Delhi: The Indian rupee may witness a strong recovery once the current market uncertainties settle down, a report by the State Bank of India (SBI) said.The dollar index (DXY) still has some momentum left, the report said, but SBI drew parallels with the 2016-2017 period, when the rupee witnessed a strong rebound after a period of volatility.
“The dollar index may have some upside left…However, as in 2016-2017, a strong currency comeback in the rupee will be clearly visible once the dust settles,” it said.The dollar index (DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.The report highlighted that the dollar index could continue its upward movement due to a number of factors, including the reversal of global financial flows towards the United States.
Additionally, the dominance of “big technology” companies supporting pro-economic growth policies such as Donald Trump’s “Make America Great Again” adds to the dollar’s strength. However, the rising DXY is creating challenges for emerging market (EM) currencies. For example, the euro dollar parity is already being incorporated in calculations by major global banks. If this trend continues, EM currencies such as the rupee could weaken further.
The report said that US benchmark yields remain volatile and could harden even more if inflation rises, especially due to the impact of tariffs on import prices. Additionally, uncertainties in the US job market and a potential “tariff-tax spiral” are contributing to the pressure on global currencies.
On the domestic front, SBI reported that India’s currency in circulation (CIC) increased by Rs 78,000 crore in the current fiscal, reaching about Rs 35.9 lakh crore, or about 11 per cent of the country’s GDP. In addition, the Reserve Bank of India (RBI) has actively intervened in the foreign exchange market, leading to net foreign exchange sales crossing Rs 1.7 lakh crore by November 2024. The report estimates that this figure has risen even further, reflecting efforts to stabilize the falling rupee.
It said, “Net foreign exchange sales by November 2024 are Rs 1.7 lakh crore and we believe that given the depreciation in the rupee, it would have easily crossed Rs 1.7 lakh crore (rising) at least as on date.” The rupee has been hit hard due to global factors, but SBI believes the worst may be over soon. The value of the rupee is expected to improve once global economic uncertainties subside and market conditions stabilise. This outlook provides a ray of hope for India’s currency, which is facing a challenging macroeconomic environment.
