Record low INR: Stability or imminent depreciation?
market volatility has been spurred by a confluence of factors. Weaker-than-anticipated US economic data has ignited concerns about a potential recession, with market estimates now placing its likelihood at 30-35%, a significant increase from the less than 10% projection in June 2024. Adding to the turbulence, the surprise rate hike by the Bank of Japan and the subsequent reversal of yen carry trades have exacerbated market uncertainty. The Indian Rupee has borne the brunt of this volatility, hitting near all-time lows and breaching its previous October 2022 record of INR 83.5. While the Rupee has depreciated in the short term, it has exhibited relative stability compared to other emerging and developed market currencies over the past six months.
INRperformance V/s Emerging Market Currencies (YTD INR depreciation~1% v/s other EM currencies ~4-10% depreciation)
The big picture question is should RBI be worried about INR and is there any significant depreciation expected in near term horizon?
In light of recent depreciation of the Japanese Yen, Chinese Yuan, Indonesia rupiah and other emerging and developed market currencies, coupled with the looming fears of geopolitical tensions, trade wars and tariffs, there is widespread concern about the possibility of near-term INR depreciation and its implications on monetary policy. However, we believe that the INR will continue to remain stable with no major risk of volatility or depreciation in the current fiscal year.
This is largely on account of:
Strong Macro Health
