Finance
The Indian rupee closed at Rs 84.6875 per US dollar on December 6, 2024. The currency has fallen by 1.49 percent in the last week on fears about slower economic development and rising demand for dollars in the Non-Deliverable Forward (NDF) market.
Earlier this week, the Indian rupee fell to a low of Rs 84.7050 on December 2, 2024. However, to prevent further rupee depreciation, the RBI intervened by selling foreign reserves and preserving the currency.
Monetary Policy Committee (MPC)
Despite rising annual inflation in August, September, and October, the Reserve Bank of India (RBI) maintained its benchmark repo rate at 6.50 percent at its October 2024 meeting. However, the RBI’s policy stance switched to neutral, indicating the likelihood of rate reduction despite early signs of an economic slowdown.
The RBI Governor has cut the cash reserve ratio by 50 basis points and kept it at 4%, unleashing Rs 1.16 lakh crore of liquidity into the economy. This action is likely to boost credit growth, encourage economic activity, and maybe increase profitability.
Following the Q2 GDP shock, growth has been a major topic of discussion. The RBI has maintained a neutral position but showed caution by reducing its FY25 GDP growth target to 6.6 per cent from the earlier 7.2 per cent. It pointed to global uncertainties, climatic conditions, and volatile market movements as risks to its GDP estimates.
In addition, the RBI made it plain that it is quite concerned about inflation. It anticipates inflation to decline somewhat in Q3, thanks to strong seasonal consumption and excellent rabi crop seeding. The RBI has increased its full-year inflation forecast to 4.8 percent from 4.5 percent.
Rupee performance in the week
The Indian rupee fell to a record low of 84.74 versus the US dollar on December 3, 2024, due to a strong currency and concerns about decreasing domestic economy. Foreign investors became net sellers, but the selling velocity was slow. Despite the weakness, the market was boosted by forecasts of greater government spending and the RBI’s supporting policies.
By December 5, the rupee had moved marginally higher, ending near 84.70, buoyed by optimistic market mood ahead of the RBI’s year-end policy meeting.
At the end of the week, December 6, the rupee surged further after the RBI maintained the repo rate and reduced the Cash Reserve Ratio (CRR) to 4%. A weaker US dollar and dropping crude oil prices also boosted the currency, though domestic market weakness limited gains.
Source: FE
