MUMBAI: The rupee ended 2024 on a weaker note, falling 2.8 percent to close at 85.59 against the US dollar, down from Monday’s close of 84.54. This is the seventh consecutive year of depreciation of the Indian currency. Dealers attributed the year-end decline to a possible change in the RBI’s forex intervention strategy, which may have allowed a modest correction in the rupee, keeping it among the least depreciated emerging market currencies.
Throughout the year, the US dollar strengthened against most major currencies. It gained 11.1% against the Japanese yen, 3.1% against the South African rand, 27% against the Brazilian real, 22% against the Mexican peso, 13.7% against the Korean won. , 4.5% against the Indonesian rupiah, 4.7% against the Philippine peso, 3.27% against the Singapore dollar, and 6.7% against the Taiwan dollar.
The rupee remained relatively stable in the first half of the year. A brief period of volatility in June, triggered by the election results, was short-lived. However, the currency began to weaken in September as FPIs adopted a “Sell India-China” strategy, leading to a decline in market indices and additional pressure on the rupee. The victory of US President-elect Donald Trump in November resulted in the dollar rising against most currencies around the world.
The most significant decline occurred in the fourth quarter, with the rupee weakening by 2.2 percent during the period. On December 27, the currency hit an intraday low of 85.81. The RBI intervened frequently to stabilize the rupee, reducing foreign exchange reserves, which peaked at $704.9 billion before falling to $60.5 billion by the end of the year.
Foreign portfolio investors Indian equities pulled $11.7 billion in the fourth quarter, compared with inflows of $12 billion during the first nine months. For 2024, net equity inflows totaled Rs 5,000 crore, down from Rs 1.71 lakh crore in 2023.
Analysts pointed to structural factors contributing to the rupee’s decline, such as the inflation gap between India and the US and India’s A persistent current account deficit, due to dependence on oil and gold imports. However, the pace of decline in the coming year will depend on the level of capital inflows.