Mumbai: A Year-End Review of the Rupee's Performance

The Indian rupee concluded 2024 on a downward trajectory, experiencing a 2.8% depreciation against the US dollar, closing at a record low of 85.59. This marks the seventh consecutive year of decline for the currency, attributed partly to a potential shift in the Reserve Bank of India's (RBI) foreign exchange intervention strategy.

Global Currency Movements and the Rupee's Stability

Throughout the year, the US dollar strengthened against most major currencies, with significant gains against the Japanese yen, South African rand, and Brazilian real, among others. The rupee, however, remained relatively stable in the first half of 2024, supported by capital inflows following the inclusion of Indian bonds in global bond indices.

Challenges and Interventions

The currency faced volatility in June due to election results and began weakening in September as foreign portfolio investors (FPIs) shifted their strategy towards China. The election of US President-elect Donald Trump in November further pressured the rupee, leading to its most significant depreciation in the fourth quarter. The RBI's frequent interventions to stabilize the rupee resulted in a notable reduction in forex reserves.

Looking Ahead

Structural factors such as inflation differentials between India and the US and India's current account deficit continue to challenge the rupee's stability. The future pace of depreciation will likely depend on the level of capital flows into the country.