Reflections 2023: Rupee shines despite a blip

The Indian rupee surprised onlookers in 2023, exhibiting remarkable resilience despite reaching a year-low of 83.395 against the dollar. By December 26, the currency had depreciated only 0.65 per cent year-on-year, a stark contrast to the 10.25 per cent plunge in 2022. Several factors bolstered the rupee's performance. A narrowing trade deficit, lower current account deficit, and robust foreign portfolio investments, particularly in equities and debt during the second half, painted a bright picture for the Indian economy, attracting overseas investors.

While the rupee started 2022 at 74 against the dollar, it had slumped to 82.78 by year-end, prompting predictions of further depreciation reaching 85 in 2023. However, the factors mentioned above, coupled with a weakening dollar due to expected Federal Reserve rate cuts, proved vital for the rupee's stability. Furthermore, the Reserve Bank of India's timely interventions played a crucial role in anchoring the currency.

The International Monetary Fund, in its December 2022-October 2023 report, noted the rupee-dollar pair's remarkably narrow range, suggesting potential RBI intervention exceeding usual market stabilization measures. Looking ahead, forex experts anticipate an appreciating rupee, trading within the 80-82 range. Rising interest rate differentials and India's inclusion in the JP Morgan Emerging Market Bond Index further reinforce this positive outlook.