India's Strong Q3 Growth Boosts Rupee, Gains 17 Paise at Open

The Indian rupee appreciated by 17 paise on March 3, following a rebound in India's gross domestic product (GDP) growth during the third quarter of the current fiscal year, according to currency experts. The rupee opened at 87.3425 against the US dollar and later traded at 87.3225, improving from the previous session’s exchange rate of 87.5125 per dollar.

"India’s economic performance has demonstrated resilience, with GDP growth in the last quarter exceeding previous levels at 6.2%. This strong momentum lends some support to the rupee," stated Amit Pabari, Managing Director at CR Forex Advisors.

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Recent economic data indicates that India's economy expanded by 6.2% in the December quarter, recovering from a seven-quarter low of 5.6% in the July-September period.

Although the third-quarter GDP figure was slightly below the MC poll median estimate of 6.3%, the full-year growth forecast remains at 6.5%.

India's economic growth had declined to a nearly two-year low of 5.6% in the second quarter. However, the government’s first advance estimates project GDP growth of 6.4% for FY25.

Factors Driving the Rupee’s Performance

The appreciation of the rupee is attributed to multiple factors, including strong domestic economic indicators, robust foreign direct investment (FDI) inflows, and a relatively stable macroeconomic environment. The improved GDP figures indicate that economic activity has regained momentum, easing concerns about a prolonged slowdown.

Experts also point to foreign institutional investor (FII) participation in Indian markets as a crucial factor supporting the rupee. In recent weeks, FIIs have increased their exposure to Indian equities, driven by optimism over economic growth and corporate earnings. This has resulted in higher demand for the rupee, strengthening its position against the dollar.

Moreover, India's foreign exchange reserves, which remain at comfortable levels, have helped mitigate volatility in the currency market. The Reserve Bank of India (RBI) has actively intervened in the forex market whenever necessary to prevent excessive depreciation of the rupee.

Global Factors Impacting the Rupee

On the global front, the US Federal Reserve’s stance on interest rates continues to influence currency movements. Recent comments from Fed officials suggest that rate cuts may be delayed, which has kept the US dollar relatively strong. However, India's resilient GDP growth and favorable economic outlook have provided a cushion against external pressures.

Additionally, crude oil prices play a significant role in determining the rupee’s trajectory. India, being a major importer of crude oil, faces inflationary risks when global oil prices rise. However, with oil prices remaining relatively stable in recent weeks, the rupee has managed to hold its ground.

Future Outlook for the Rupee

Looking ahead, analysts expect the rupee to trade in a relatively stable range, supported by economic growth and policy measures. However, external factors such as geopolitical tensions, global interest rate movements, and commodity price fluctuations could introduce volatility.

The Indian government and the RBI will likely continue to focus on maintaining economic stability and ensuring that currency fluctuations do not impact trade and investment flows. As long as domestic economic fundamentals remain strong, the rupee is expected to maintain a balanced trajectory in the coming months.