The Indian rupee has depreciated by over 3% this year, hitting an intraday record low of 85.80 per US dollar last week; What to expect in 2025?
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The Indian rupee has depreciated by over 3% this year, hitting an intraday record low of 85.80 per US dollar last week, down from 83.19/$1 at the beginning of 2024. Treasury executives and dealers anticipate that this volatility will persist through the next quarter, forecasting the rupee to weaken further to 86.50/$1 by March 2025, before stabilizing as the new fiscal year begins.
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This expected volatility is attributed to the uncertainties surrounding the incoming Donald Trump administration, along with factors such as the union budget and potential actions by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in February.
For individuals, the weakening rupee has mixed effects. While international travel and foreign education become more expensive, those working abroad and remitting money to India stand to benefit as the rupee continues to slide.
“The pace of depreciation has definitely accelerated in recent months, and I expect the rupee to hit the 86.50/$1 mark by March. The period from January to March will be critical. After March, the RBI is likely to ease policy rates, which should lead to portfolio inflows and help stabilize the rupee,” said Anshul Chandak, Head of Treasury at RBL Bank.
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A significant portion of the rupee’s depreciation—about 2.03% of the total 3% weakness—occurred in the last three months, following Donald Trump’s re-election as U.S. president. The US Federal Reserve’s policy outlook also created further uncertainty, resulting in outflows from Indian equities and bonds.
Shaktikanta Das, former Governor of the RBI, noted that the Indian rupee has been less volatile compared to other emerging market currencies. However, the RBI has been actively intervening to stabilize the rupee-dollar exchange rate, driven by increased demand for US dollars due to India’s oil imports and a widening trade deficit.
“Naveen Mathur, Director of Commodities & Currencies at Anand Rathi Shares and Stock Brokers, stated that the RBI has also been active in the non-deliverable forward (NDF) markets to prevent sharp depreciation of the rupee.”
India’s foreign exchange reserves have fallen from a record high of $704.89 billion in late September to $644.39 billion on December 20, 2024, the lowest in nearly six months.
From January 1 to December 27, 2024, the rupee depreciated by nearly 3% against the dollar, from Rs 83.19 to Rs 85.59, with a record drop of Rs 2 in the last two months. The rupee breached the critical Rs 84 mark on October 10, surpassed Rs 85/$1 on December 19, and hit a lifetime low of Rs 85.80 in intraday trading on December 27.
Despite this, the rupee saw gains against the Japanese yen, appreciating by 8.7%, from Rs 58.99 per 100 yen on January 1 to Rs 54.26 on December 27. It also gained over 5% against the euro, from Rs 93.75 on August 27 to Rs 89.11 on December 27.
Experts attribute the rupee’s weakness to the exceptional strength of the US dollar, driven by strong macroeconomic factors in the US and geopolitical concerns, particularly the US-China trade tensions. The US dollar outperformed global currencies, rising 6.9% in 2024, fueled by the resilience of the US economy and growing concerns about Europe’s economic outlook.
The rupee’s most significant decline occurred between October and December, largely due to substantial outflows of Foreign Institutional Investments (FII), which totaled approximately Rs 1.70 lakh crore, adding pressure on the rupee.
Looking ahead, analysts expect a relatively stable outlook for the rupee in 2025, forecasting it to trade between Rs 82 and Rs 87 against the dollar. “A potential recovery could be supported by government policy measures and improvements in domestic economic growth,” said Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd.
In 2025, global events—such as decisions by the U.S. Federal Reserve and President Trump’s trade policies—are expected to influence currency trends. “If the Trump administration adopts an ultra-protectionist stance, it could disrupt global trade and capital flows, leading to further volatility,” said Anindya Banerjee, Senior Vice President at Kotak Securities.
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India’s projected economic growth of 6.5%-7.5% in 2025 could support the rupee, while monetary easing by the RBI to stimulate growth might put downward pressure on the currency.
For 2025, we expect the rupee to fall to Rs 87/$1, with the upside potentially limited to Rs 83,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan. He also noted that fiscal stimulus in China and a slowdown in the US economy could help support the rupee later in the year.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
