The country’s aggressive energy transition and robust economic growth is expected to keep the rupee stable against the dollar even as the US Fed ventures into rate cuts.
India has made significant strides in reducing its carbon intensity, with a 33 per cent reduction between 2005 and 2019, as per a UN report. This trend is expected to continue, driven by investments in renewable energy and transportation electrification.
Dhruv Goyal, CEO, FourLion Capitals said India will contribute 17 per cent to global growth this year as per IMF estimate and this robust economic expansion, paired with fiscal consolidation has created a promising backdrop for the rupee.
In this backdrop, he said the country’s energy transition will play out to be a crucial factor, which will bolster the rupee’s strength.
A lower oil import bill, which historically a drag on the currency, will further support the rupee’s position, he added.
While the rupee weakened due to the Federal Reserve’s aggressive rate hikes, it outperformed other major currencies such as the British pound, euro and yen. This performance was supported by India’s robust economic recovery post-Covid and strong foreign capital inflows. Moreover, the RBI intervention, selling $70 billion from its reserves, cushioned the decline.
Looking ahead, Goyal said the rupee has the potential to enter a ‘golden period’ with market expectations of a US Federal Reserve rate cut and the possibility of an RBI rate reduction.
However, the RBI will need to balance these cuts carefully, considering the impact on banking deposits and credit growth.
Overall, the rupee’s outlook appears optimistic, with strong demand anticipated as India solidifies its role as a key investment destination. The RBI’s $680 billion in forex reserves provides a critical buffer, ensuring stability amid potential global economic turbulence, he said.
