NEW DELHI: The Indian currency in 2023 put up a strong performance despite falling to its lowest level of 83.395 (closing level) against the US dollar.
The rupee has fallen only 0.65% against the US dollar in 2023 (till Dec 26), against the 10.25% value it lost in 2022. The rupee on Tuesday fell 3 paise to settle at 83.19 against the greenback.
The local currency was supported by several factors including a shrinking trade deficit, lower-than-expected current account deficit and strong foreign portfolio investment (FPI) inflows in equity and debt, especially, in the second half of the year. Many macroeconomic factors turned positive for the Indian economy, and that led to an inflow of funds from overseas investors.
The domestic currency had declined from 74 levels in January 2022 to 82.78 by December 31, 2022. The 10% decline against the US dollar had forced many experts to touch the level of 85 dollars in 2023.
However, the rupee was helped by the conditions mentioned earlier, as well persistent weakening of the dollar on account of the market expectation of a Federal Reserve rate cut.
But the big support for the rupee also came from the Reserve Bank of India (RBI) as and when required. RBI Governor Shaktikanta Das had admitted that in public. In an interaction in Marrakech, Morocco, earlier this year, Das said: “…we were intervening in the market… we do intervene in the market, but our intervention is both ways. Sometimes, we buy dollars, sometimes we sell dollars, it depends on which way the market is moving.”
The IMF in its latest report said during December 2022-October 2023, the Rupee-US Dollar exchange rate moved within a very narrow range, suggesting that the central bank’s interventions likely exceeded levels necessary to address disorderly market conditions.
Forex experts now expect USD-INR to trade with an appreciation bias. Gaura Sen Gupta, economist, at IDFC First Bank, expects rupee to trade in the 80 to 82 range supported by rising interest rate differentials and India’s inclusion into the JPM EM bond index.