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MUMBAI: CareEdge Ratings has said the dollar-rupee exchange rate will appreciate to approximately 82 levels in 2024. This forecast is underpinned by factors such as a weakened dollar, robust Foreign Portfolio Investment (FPI) inflows, and a favorable current account deficit. However, the report highlights potential uncertainties and cautions against risks, particularly stemming from the escalation of the Red Sea crisis and heightened global macro uncertainty.
The rating agency anticipates the Reserve Bank of India (RBI) to take measures by cutting the repo rate by 50 basis points in 2024, with a distribution of 25 basis points each in Q3 and Q4, followed by a pause (1%=100bps). This move is in response to the softening dollar and is aligned with the expectation that the Federal Reserve might cut rates by 100-125 basis points in CY24.
CareEdge Ratings outlines a projected range for $-INR, forecasting levels between 82.75-83.25 in Q1, 82.5-83 in Q2, 82.25-82.75 in Q3, and 82-82.5 in Q4 CY24. Simultaneously, it predicts the Dollar Index to remain within the range of 98-101 levels by Q4 CY24.
Besides the soft dollar, buoyant foreign portfolio flows and global bond index inclusion, the expected policy continuity of the General Elections is seen as a contributing factor. Additionally, the current account deficit is likely to benefit from crude oil prices trading between $70-$85 per barrel in 2024 amid a global demand slowdown.
In terms of trade, the report notes a narrowing goods deficit to a 5-month low of $19.8 billion in December, attributed to higher non-oil exports and stable oil imports. The services surplus remained steady at $14.6 billion in the same period. While equities experienced Foreign Portfolio Investment (FPI) outflows in January due to caution in emerging markets, sustained FPI inflows in debt have largely offset these outflows, supported by India’s inclusion in JP Morgan bond index and potential inclusion in Bloomberg EM Local Currency indices.
The rating agency anticipates the Reserve Bank of India (RBI) to take measures by cutting the repo rate by 50 basis points in 2024, with a distribution of 25 basis points each in Q3 and Q4, followed by a pause (1%=100bps). This move is in response to the softening dollar and is aligned with the expectation that the Federal Reserve might cut rates by 100-125 basis points in CY24.
CareEdge Ratings outlines a projected range for $-INR, forecasting levels between 82.75-83.25 in Q1, 82.5-83 in Q2, 82.25-82.75 in Q3, and 82-82.5 in Q4 CY24. Simultaneously, it predicts the Dollar Index to remain within the range of 98-101 levels by Q4 CY24.
Besides the soft dollar, buoyant foreign portfolio flows and global bond index inclusion, the expected policy continuity of the General Elections is seen as a contributing factor. Additionally, the current account deficit is likely to benefit from crude oil prices trading between $70-$85 per barrel in 2024 amid a global demand slowdown.
In terms of trade, the report notes a narrowing goods deficit to a 5-month low of $19.8 billion in December, attributed to higher non-oil exports and stable oil imports. The services surplus remained steady at $14.6 billion in the same period. While equities experienced Foreign Portfolio Investment (FPI) outflows in January due to caution in emerging markets, sustained FPI inflows in debt have largely offset these outflows, supported by India’s inclusion in JP Morgan bond index and potential inclusion in Bloomberg EM Local Currency indices.
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