The rupee slips under the weight of the dollar

The measures taken by the Bank of Mauritius in favor of the rupee face the strength of the dollar. For the moment, the rupee is unable to stabilize against the greenback and even less to appreciate.

The US dollar appreciated by 0.7% against the rupee last November. The US currency was supported by positive expectations regarding upcoming policies under Donald Trump’s presidency. According to the latest report from AON Solutions, the US Dollar Index also gained 1.9% against other major currencies during the same period. At the same time, the pound sterling depreciated by 1.6% against the rupee, as did the euro which weakened by 1.8% against the local currency.

One of the main objectives of the new government as hammered out since the election campaign is to stop the depreciation of the rupee and appreciate the local currency. Dr Rama Sithanen, Governor of the Bank of Mauritius, assured a press conference that the Central Bank will do everything possible and within its capacity. Measures have also been announced in this direction. However, the dollar/rupee exchange rate rose from Rs 46.78 on November 29 to Rs 47.92 on January 6. Is it presumptuous to hope that the dollar/rupee exchange rate could fall below Rs 46, or even Rs 45 in the medium term? Are the forces of dollar appreciation more powerful than the measures taken by the Bank of Mauritius?

Amit Bakhirta, CEO of ANNEAU explains that there are two main factors that need to be taken into consideration. The first concerns the trend of a certain appreciation of the dollar on international markets. There is market anticipation based on certain announcements of Donald Trump’s tax policies. “The drop in interest rates and the level of inflation in the United States or the international foreign exchange markets also weigh,” he argues. The CEO of Blue Ship Capital, Alexandre Sanchini, agrees. According to him, the rupee/dollar exchange rate is significantly influenced by what is happening in the United States and the rest of the world. The driving force behind this exchange rate, he says, is the dollar, which is very strong at the moment against several currencies. “We are almost at Rs 48 per dollar. This is mainly due to the strength of the dollar and not the weakness of the rupee. The dollar is the currency of an economy that is currently booming. Economic growth is very strong in the United States,” he explains.

What about internal factors, the monetary policy of the Bank of Mauritius is essential for the value of the local currency. For Amit Bakhirta, increasing interest rates in Mauritius would be a strong signal in this quest for appreciation of the rupee. The CEO of ANNEAU believes that there is also a lack of intervention by the Bank of Mauritius in the domestic foreign exchange market. In this regard, on January 6, the Central Bank intervened in the domestic foreign exchange market to sell $10 million at the rate of Rs 46.75 per dollar. Before that, the latter’s previous intervention in the market dates back to December 16, 2024 for a sum of 10 million dollars at the rate of Rs 46.50 per dollar.

It also seems that the banking and financial sector has not yet been convinced of the seriousness of the Central Bank’s desire to make the rupee appreciate. At least that’s what Amit Bakhirta says. He points out that during the election campaign, it was a question of appreciating the rupee. For several weeks, discussions have been leaning towards a stabilization of the rupee. Amit Bakhirta is of the opinion that the definitions are fundamentally different. “Both are realistic, but the resources needed to achieve these two objectives are different,” he emphasizes.

Perspectives

Is it wishful thinking to hope that the local currency will first stabilize before aspiring to appreciate? Alexandre Sanchini maintains that there is hope these days for the rupee. The rupee has appreciated against the euro, which proves, according to him, that the local currency is strong against currencies weaker than the dollar.

However, the dollar took a strong upward trend after the last meeting of the US Federal Reserve (FED) in December. This should meet again at the end of January. In the event that it maintains the tone of maintaining the level of its rates for longer than expected, Alexandre Sanchini fears that this will be a factor of strength for the dollar, and consequently of weakness for the rupee. On the other hand, Amit Bakhirta specifies that he is not worried about the level of the dollar, because the trend influenced by expectations could be reversed. A certain weakening of the greenback could even occur, according to him, during the first half of 2025.

Complicated end of November for the dollar

For the week ending November 29, the dollar had fallen sharply, also giving up some gains made in the wake of Donald Trump’s electoral victory at the start of the month in question. Compared, as of November 28, the greenback fell by 0.21% to Rs 46.78.