The Indian rupee hit a historic low of 84.86 against the US dollar on Tuesday, closing marginally higher at 84.85 compared to Monday’s 84.83. Government bond yields also saw a decline, with the 10-year benchmark yield dropping by one basis point to 6.7%. Speculation surrounding Sanjay Malhotra’s appointment as the new Reserve Bank of India (RBI) governor has heightened expectations of a dovish shift in monetary policy, possibly leading to a rate cut as early as February 2025.
Forex analysts predict the rupee may trade between 84.65 and 85.10 in the near term, with a possibility of weakening further to 86 by March 2025. Meanwhile, global markets await the release of U.S. inflation data, which could have significant implications for currency trends.
Sonal Varma of Nomura suggested three potential policy changes under Malhotra’s leadership: a more accommodative monetary policy with a February rate cut on the horizon, reduced reliance on pro-cyclical macroprudential measures, and increased flexibility in managing currency fluctuations.
Despite optimism for lower interest rates and positive implications for government bonds, concerns linger over the rupee’s vulnerability. UBS strategist Rohit Arora noted that while RBI’s forex policies have minimized rupee volatility, a gradual rise in the dollar-rupee exchange rate is likely due to India’s soft equities outlook and persistent capital outflows.
The transition at the Monetary Policy Committee (MPC), with Deputy Governor Michael Patra’s term ending in January and the onboarding of new external members in October, has further fueled expectations of a policy reset. Economists like Radhika Rao of DBS and Suresh Ganapathy of Macquarie anticipate Malhotra will prioritize addressing economic growth concerns and stabilizing the rupee while steering RBI towards a dovish stance.
