Rama Krishna Sangem
After soaring high for over a year, the US dollar may come down to Rs 80 in the next four months, by August this year. This is the assessment of economic and financial market experts who studied a recent RBI (Reserve Bank of India) bulletin early this month. At a time last September/October, dollar touched a peak of Rs 83.29. In the open forex market it was even higher.
But, the trend since then suggests that period of dollar going up is over. As Indian economy is showing strong signs of recovery and decent GDP growth, not less than 6.2 per cent this year, the foreign exchange reserves are likely to increase, thus strengthening rupee against dollar, a group of financial market specialists based out of Hyderabad said, while talking to Excel India on April 17, Monday.
Foreign exchange reserves at $ 578.45 bn
The foreign exchange reserves with RBI stand, as on April 7, at 578.45 billion US dollars. This is a sharp recovery from a low of 524.53 billion dollars last October. Of course, we had foreign exchange reserves at 606 billion dollars on April 1, 2022. But, we lost them steeply thanks to soaring dollar continuously for 4-5 months as US Federal Reserve increased interest rates steeply – 50 basis points every time.
RBI usually keeps its monies in two major instruments – US treasury bonds and gold reserves. At the same time, RBI also shells rupees to purchase dollars to check volatility (fluctuations in market) in the country. Last year, RBI had to spend around 80 billion US dollars to keep rupee value stable. Otherwise, we would have seen dollar touching Rs 85-88. RBI also kept on increasing its interest rates to prevent outflow of dollars as US Federal Reserve too hike its rates.
So, what saved our rupee? The banking crisis in the US – triggered by collapse of Silicon Valley Bank and others recently. The crisis is attributed to sharp hike in interest rates. This forced the Federal Reserve to slowdown its interest rate hikes. Taking a cue from that, RBI too paused its rate hike, saying that controlling inflation (that is the purpose of rate hike) alone is not its focus, but taking care of growth too.
Now the emerging situation is like this. Indian economy is doing well and will do well too in the coming months, thanks to a good monsoon. Exports – both goods and services – are doing well – at 778 billion US dollars. As Finance Minister Nirmala Sitharaman told the IMF board in the US this week that India will continue to be the fastest growing country in 2024 financial year. Inflation is no worry.
That means, we get more dollars – just as Federal Reserve slows down its rate hikes in next 10-12 months. That helps RBI build more gold reserves and dollar exchange rate against rupee will be in our favour. Our rupee may touch Rs 80 per USD by August middle, say the experts. Three major factor will make it possible – one good monsoon, two more exports and three more foreign investments.