Mumbai, India – The Reserve Bank of India (RBI) is poised to maintain a cautious approach to monetary policy, a move expected to provide sustained support to the Indian Rupee (INR), according to economists at Wells Fargo. The delayed easing strategy is anticipated to contribute to the Rupee’s strength over time.
A patient and cautious stance by the RBI is viewed favorably by economists, who believe it will work in tandem with more attractive interest rate differentials, particularly if the Federal Reserve proceeds to cut policy rates ahead of the RBI.
The analysts at Wells Fargo foresee local politics acting as a source of strength for the INR. With a predicted victory for Prime Minister Narendra Modi in the Lok Sabha elections, coupled with a majority, the economists anticipate a continuation of broad-based policy and further reforms to integrate India into the global economy. This policy continuity is expected to attract both equity and debt inflows, providing additional support for the Indian Rupee.
The overall economic outperformance, coupled with fiscal responsibility and debt consolidation, along with reduced political risk, is seen as a compelling case for credit rating agencies to upgrade India’s sovereign credit rating.
Looking ahead, Wells Fargo expresses optimism for the Rupee’s long-term strength. The USD/INR exchange rate is anticipated to strengthen to 82.00 by the close of 2024, with a continued foundation for Rupee strength expected into 2025. The economists project a movement towards 81.00 in the middle of the following year, underlining their positive outlook for the Indian Rupee’s performance.
