A sizable balance of payments surplus may not result in a materially stronger Rupee, as the RBI may build up its FX reserves further, keeping the INR in a tight range.

A stable exchange rate also serves well to stabilise imported inflation while supporting exports and manufacturing. This has however dampened the incentives among exporters and importers for hedging and could complicate domestic liquidity management amid FX absorption when inflation has flared up. 

We expect INR to underperform the broader Asian currency complex once the US Dollar begins to ease.

USD/INR – Dec 23 82.80 Mar 24 82.50 Jun 24 82.00 Sep 24 81.50 Dec 24 80.00 Mar 25 79.50 Jun 25 79.00 Sep 25 79.00 Dec 25 79.00