Rupee Expected to Stabilize Amid Easing Global Tensions
Rupee Stability Forecast
According to a report from Union Bank of India (UBI), the Indian Rupee is anticipated to experience stability as global uncertainties diminish and geopolitical tensions along India's borders ease. The report states, "Rupee volatility is likely to stabilize for the time being, aided by reduced global uncertainties and lower border tensions."
Current Exchange Rate Insights
As of May 21, the Rupee is trading at approximately 85.61 against the US dollar. The report suggests that the currency may exhibit sideways movement, with support identified around Rs 84.80 per USD. A significant drop below this threshold could lead to a further decline to Rs 84.45 per USD. Conversely, resistance is expected near Rs 85.90 per dollar, with a potential rise towards 86.80 if breached.
Monitoring Key Risks
The UBI report highlights two critical risks to watch: a possible overshoot in the US Dollar Index (DXY) beyond current technical levels and any new escalation in cross-border tensions, both of which could negatively impact Rupee sentiment.
Interest Rate Adjustments and Forex Reserves
The anticipation of a pause or gradual adjustment in interest rate hikes by the US Federal Reserve is also contributing to reduced pressure on emerging market currencies, including the Rupee. This environment is seen as supportive for currency stability in the near term. Additionally, data from the Reserve Bank of India (RBI) indicates that India's foreign exchange reserves increased by USD 4.553 billion to reach USD 690.617 billion as of the week ending May 9, although the previous peak was USD 704.89 billion in September 2024.
Role of RBI in Currency Management
Foreign exchange reserves, or FX reserves, are assets maintained by a nation's central bank, primarily in reserve currencies like the US Dollar, with smaller amounts in the Euro, Japanese Yen, and Pound Sterling. The RBI actively manages liquidity by selling dollars to prevent significant Rupee depreciation and strategically buys dollars when the Rupee is strong.