New Delhi, Dec 26:The Indian Rupee (INR) is expected to remain under pressure in 2025, weighed down by slowing foreign direct investment (FDI) inflows, weak manufacturing exports, and a narrowing policy rate differential with the United States, according to a report by Standard Chartered Bank.
The report projects the rupee to trade with a modest depreciating trend, reaching 85.5 per U.S. dollar over the next 12 months.
“Slowing FDI flows, weak manufacturing export growth amid slowing global demand, and narrowing policy rate differential with the U.S. are likely to pressurize the INR,” the report noted.
The report highlighted the challenges stemming from global and domestic factors, including sluggish global demand affecting exports and reduced capital inflows. The rupee is expected to face significant headwinds despite several supportive elements in India’s economic landscape.
“We expect the INR to trade with a modest depreciating bias to 85.5/USD over a 12-month time horizon,” the report stated.
Despite the challenges, several factors are expected to cushion the rupee’s decline:
- India’s improving economic growth trajectory.
- Stable balance of payments, bolstered by India’s inclusion in the global bond index.
- Softer commodity prices and the Reserve Bank of India’s (RBI) strong foreign exchange reserves.
The report also highlighted a positive outlook for Indian equities, driven by robust GDP growth and corporate earnings that are expected to outpace those of global peers.
“India’s economic growth is expected to recover from a cyclical slowdown and stay ahead of its major peers in 2025,” it noted.
Other factors supporting equities include steady domestic investor inflows through systematic investment plans (SIPs) and a resumption of foreign investments, spurred by improving macroeconomic fundamentals, potential U.S. Federal Reserve rate cuts, and low foreign investor positioning in Indian markets.
Inflation in India is projected to trend lower, aided by better crop sowing, government measures to address supply concerns, and the disinflationary effects of past policy tightening.
While the rupee faces pressures, the report underscored India’s resilience, highlighting its strong macroeconomic fundamentals and growth potential as key drivers shaping a robust economic outlook for 2025.
