Indian Rupee Showcases Stability Amidst Global Economic Challenges

The Indian Rupee emerges as the least volatile major currency, showcasing India's economic resilience and attracting foreign investment amidst global uncertainties.

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Dil Bar Irshad
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Indian Rupee Showcases Stability Amidst Global Economic Challenges

Indian Rupee Showcases Stability Amidst Global Economic Challenges

The Indian Rupee emerged as the least volatile major currency among emerging markets and advanced economies in the financial year 2023-24, according to the Monthly Economic Review report by the Department of Economic Affairs. The Rupee-USD exchange rate hovered within the range of Rs 82-83.5 per USD, reflecting India's strong macroeconomic fundamentals and financial stability.

Despite challenges such as a stronger US dollar and elevated US treasury yields, the relative stability of the Rupee is attributed to the strength of India's economy, financial stability, and improvements in its external position. The report anticipates continued Rupee stability, supported by robust foreign inflows and favorable trade deficits.

Why this matters: The Rupee's stability amidst global economic uncertainties highlights India's resilience and attractiveness as an investment destination. It also provides a buffer against external shocks and supports India's economic growth trajectory.

India's foreign exchange reserves have reached an all-time high, sufficient to cover 11 months of projected imports and more than 100% of total external debt. The Reserve Bank of India's interventions in the forex market, particularly through liquidity management, have also helped maintain Rupee stability amidst global volatility.

In the previous year (2022-23), the Rupee faced pressure due to factors like monetary policy tightening by central banks, the Ukraine war, and the strengthening of the US dollar index, leading to over 11% depreciation. However, the report notes a significant turnaround in capital inflows to India in the just-concluded financial year 2023-24, contributing to the rise in foreign exchange reserves.

The Monthly Economic Review report highlights that the Indian Rupee's stability in FY 2023-24, despite global challenges, reflects the country's sound macroeconomic fundamentals and financial stability. The report expects this trend to continue, with robust foreign inflows and comfortable trade deficits keeping the Rupee within a "comfortable range".

Key Takeaways

  • Indian Rupee least volatile major currency in FY 2023-24, hovering at Rs 82-83.5/USD.
  • Rupee stability attributed to India's strong economy, financial stability, and improved external position.
  • India's forex reserves at all-time high, covering 11 months of imports and 100% of external debt.
  • Rupee faced pressure in FY 2022-23 but saw significant turnaround in capital inflows in FY 2023-24.
  • Rupee stability reflects India's sound macroeconomic fundamentals and is expected to continue.