Indian Rupee to remain in pressure amid weak manufacturing exports; policy rate differential with US: report
The Indian rupee (INR) is expected to come under pressure in 2025 due to a combination of global and domestic challenges, according to a report by Standard Chartered Bank.
Key factors identified in the report include slowing foreign direct investment (FDI) inflows, weak manufacturing export growth amid declining global demand, and a narrowing policy rate differential with the United States. These elements are likely to exert downward pressure on the Indian currency.
The report projects the rupee to exhibit a modest depreciating trend, potentially reaching ₹85.5 per US dollar over the next 12 months. While India’s improving economic growth, attractive real yields, and strong foreign exchange reserves offer some support to the currency, these positive factors may not be enough to counteract the broader pressures.
“We expect the INR to trade with a modest depreciating bias to 85.5/USD over a 12-month time horizon,” the report said.
On a positive note, the report highlighted India’s favorable macroeconomic outlook, projecting a recovery in economic growth from the current cyclical slowdown. Key drivers of this recovery include increased government capital expenditure, a resurgence in rural demand, improved urban consumption, and broader policy support measures.
Additionally, inflation is expected to trend lower, aided by better sowing of summer and winter crops, government measures to manage supply concerns, and the disinflationary effects of past monetary policy tightening.
The report also underscored positive prospects for Indian equities, attributing potential gains to robust GDP growth and corporate earnings, which are expected to outpace those of major global peers. Steady inflows from domestic investors through systematic investment plans (SIPs) and renewed foreign investments—driven by strong macroeconomic fundamentals, expected rate cuts by the US Federal Reserve, and low foreign investor positioning—are projected to provide strong support for the stock market.
“India’s economic growth is expected to recover from a cyclical slowdown and stay ahead of its major peers in 2025,” the report added.
Despite challenges for the rupee, Standard Chartered Bank’s analysis pointed to India’s resilience, noting its strong macroeconomic fundamentals and growth potential as critical factors shaping its economic outlook for the coming year.
