New Delhi [India]: According to a report released by Union Bank of India (UBI), the Indian Rupee is expected to stabilize as global uncertainties subside and geopolitical tensions along India’s borders ease.
The report states, “Rupee volatility is expected to settle for now, supported by easing global uncertainties and reduced border tensions.” It further notes that, based on the current global landscape, the recent volatility is likely to be short-lived as major sources of concern appear to have diminished for the time being.
As of May 21, the Rupee was trading at 85.61 against the US Dollar.
UBI’s analysis suggests, “We now anticipate a sideways movement in the Rupee, with support seen around Rs 84.80/USD; a decisive break below this level could open the door to Rs 84.45/USD.”
On the other hand, the report projects resistance around Rs 85.90 per US Dollar, with the potential for further depreciation to Rs 86.80, if that resistance level is breached.
The bank also flagged two important risks that could impact the Rupee’s outlook:
“Looking ahead, we are closely monitoring two key risks: A potential overshoot in the US Dollar Index (DXY) beyond current technical levels & any fresh escalation in cross-border tensions, which could weigh negatively on Rupee sentiment.”
Adding to the positive sentiment for emerging markets, including India, the UBI report notes that expectations of a pause or gradual adjustment in US Federal Reserve interest rate hikes are helping to ease pressure on currencies like the Rupee.
These developments, according to UBI, contribute to a more favorable environment for short-term currency stability.
Additionally, data from the Reserve Bank of India (RBI) shows that India’s foreign exchange reserves increased by USD 4.553 billion, reaching USD 690.617 billion in the week ending May 9. However, the all-time high for forex reserves was USD 704.89 billion in September 2024.
Foreign exchange reserves—managed by the RBI—are primarily held in major currencies like the US Dollar, along with smaller shares in the Euro, Japanese Yen, and Pound Sterling. The RBI routinely intervenes in the currency market to manage liquidity. This includes selling dollars to prevent steep depreciation and buying dollars when the Rupee strengthens.