The Indian rupee closed at Rs 84.6875 against the US dollar, on December 6, 2024. The currency has weakened by 1.49 per cent over last one week on concerns over slowing economic growth and increased demand for dollars in the Non-Deliverable Forward (NDF) market.
Earlier this week, the Indian rupee hit a low of Rs 84.7050 on December 2, 2024. However, to stop further depreciation of the rupee, the RBI intervened by selling foreign reserves and maintaining the currency.
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Monetary Policy Committee (MPC)
The Reserve Bank of India (RBI) kept its benchmark repo rate unchanged at 6.50 per cent during its October 2024 meeting, despite a rise in annual inflation in August, September, and October. However, the RBI shifted its policy stance to neutral, signaling the possibility of rate cuts amid early signs of an economic slowdown.
Nishant Srivastava CEO Torus Wealth said, “The RBI’s decision to hold the repo rate at 6.5% signals a firm stance on inflation control, even as GDP growth forecasts for FY24 are trimmed to 6.3 per cent. I feel the 50 bps CRR cut is set to inject Rs 1 lakh crore into the banking system, bolstering liquidity. While equity flows may remain cautious short term, the additional liquidity could drive optimism in key sectors as markets anticipate a potential rate cut in early 2024.”
The RBI Governor has reduced the cash reserve ratio by 50 basis points, and maintained it at 4 per cent, releasing Rs 1.16 lakh crore in liquidity into the system. This move is expected to support credit growth, stimulate economic activity, and potentially enhance profitability.
After the Q2 GDP shock, growth has become a key focus of discussion. The RBI has maintained a neutral stance but signaled caution, cutting 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.
The RBI also clearly signaled its strong focus on inflation. It expects inflation to ease somewhat in Q3, supported by robust festive demand and favorable rabi crop sowing. The RBI has revised its full-year inflation estimate to 4.8 per cent from the previous estimate of 4.5 per cent.
Rupee performance in the week
The Indian Rupee hit a record low of 84.74 against the U.S. Dollar on December 3, 2024, due to a strong dollar and concerns over slowing domestic growth. Foreign investors turned into net sellers, but the selling pace was low. Despite this weakening, the market was fueled by expectations of increased government spending and the RBI’s supportive policies.
By December 5, the rupee traded slightly upwards, closing near 84.70, supported by positive market sentiment ahead of the RBI’s year-end policy meeting.
At the end of the week, December 6, the rupee strengthened further after the RBI kept the repo rate steady and cut the Cash Reserve Ratio (CRR) to 4 per cent. A weaker U.S. Dollar and falling crude oil prices also supported the currency, though domestic market weakness limited gains.
