A modest balance of payments surplus on account of strong financial flows points to Rupee appreciation, but the RBI is still far from a comfortable level of foreign currency reserves. In the near term, it will continue with its heavy two-way intervention to ensure the stability of Rupee in the face of sporadic external headwinds. 

However, once the USD weakens decisively, we expect it to build up its FX reserves more aggressively. This means the Rupee will likely underperform during the USD sell-off expected in 2024.