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Rupee down about 4% this year, but sharp falls not expected
The rupee has weakened by roughly 4% year-to-date, but forecasters now see limited room for a steep decline in the near term. “Given that the rupee has already weakened by roughly 4% this year, we do not expect significant further depreciation in the near term,” the report said.
Why a big fall looks unlikely
- Valuation effect: A 4% move already adjusts exchange rate expectations, reducing immediate downside pressure.
- Central bank stance: Policy measures and intervention in forex markets can stabilize the currency when needed.
- Capital flows: Steady foreign investment inflows make sharp depreciation less probable.
- Global factors: While a stronger dollar can weigh on the rupee, recent global moves have been mixed, limiting one-way pressure.
Risks that could change the picture
Even with a muted near-term outlook, several risks could push the rupee lower:
- Renewed strength in the US dollar or faster-than-expected rate hikes overseas.
- Sharp rises in global commodity prices, especially oil, which widen the current account deficit.
- Sudden capital outflows or geopolitical shocks that hurt investor sentiment.
What businesses and consumers should watch
- Oil and commodity prices: Higher import bills can pressure the currency and affect fuel costs.
- Central bank signals: Any hint of intervention or policy shift may influence exchange rates.
- Foreign investment trends: Net inflows or outflows will be key for currency stability.
- Domestic inflation: Persistent price pressures could affect interest rates and the currency.
The near-term takeaway: while the rupee has eased notably this year, current assessments suggest limited scope for significant further depreciation unless fresh economic or global shocks emerge. Businesses and consumers should monitor the indicators above to gauge any change in the outlook.