Rupee Gains Limited Even if Fed Cuts Rates by 25 Basis Points This Week
Analysts say weak foreign inflows and a widening trade deficit could limit gains even if Fed trims rates by 25 bps this week
India, Dec 08 : The Indian rupee has endured a challenging year, slipping past the 90 per dollar mark last week and registering a 5% decline since January, making it the weakest currency in Asia. The Reserve Bank of India (RBI) intervened with a 25 bps rate cut, a Rs 1 lakh crore open market bond purchase, and a $5 billion buy sell swap to ease dollar liquidity. While these measures have provided temporary relief, market attention now shifts to the US Federal Reserve’s policy decision scheduled for December 9–10.
Traders are largely pricing in a 25 bps Fed rate cut, which historically would weaken the dollar and support emerging market currencies like the rupee. However, analysts caution that any positive impact may be limited this time.
“Fed rate cuts are already factored in by the currency markets, and unless India’s trade deal with the US materialises, nothing will significantly change the rupee’s direction,” said Bhavik Patel, senior commodities analyst at Tradebulls Securities.
Structural challenges, including a widening trade deficit and uneven foreign inflows, continue to weigh on the rupee. In October, India recorded a record trade deficit, compounded by sluggish global demand and geopolitical uncertainties, limiting scope for meaningful appreciation.
Foreign investment, both FPI and FDI, has remained patchy, offering minimal support to the currency. Analysts note that inflows could improve if global volatility eases, but current weak participation amplifies the rupee’s sensitivity to negative developments.
“While RBI’s liquidity injection and neutral policy stance can offer temporary relief, weak foreign inflows and a wide trade deficit will likely cap any strong appreciation,” said Jigar Trivedi, senior analyst at Reliance Securities. He identifies 89.3–90.4 as the key rupee levels to watch this week.
