NEW DELHI: The Indian rupee slid to a record low of 85.24 against the US dollar in early trade on Thursday, weighed down by rising US Treasury yields and a decline in most Asian currencies. The rupee, which had closed at 85.20 on Tuesday, opened lower after a mid-week holiday in Indian financial markets.
The 10-year US Treasury yield climbed to its highest level since late May, boosting the dollar index near its year-to-date peak. The offshore Chinese yuan also weakened to 7.3070 per dollar, amplifying the regional currency pressure.
A recent Standard Chartered Bank report highlighted multiple headwinds likely to challenge the rupee in the coming year. Key pressures include slowing foreign direct investment (FDI) inflows, weak manufacturing exports amid muted global demand, and a narrowing policy rate differential with the US.
“Slowing FDI flows, weak manufacturing export growth, and narrowing policy rate differential with the US are likely to pressurize the INR,” the report noted. It projects the rupee to depreciate modestly, reaching 85.5 per US dollar over the next 12 months.
Despite these challenges, certain factors may lend support to the rupee. India’s robust economic growth, attractive real yields, stable balance of payments bolstered by its inclusion in the global bond index, softer commodity prices, and strong forex reserves are all positive indicators.
However, these drivers may not be sufficient to counter the downward pressures. “We expect the INR to trade with a modest depreciating bias to 85.5/USD over a 12-month time horizon,” the report stated.
The report also painted a favourable picture for Indian equities, underpinned by strong GDP growth and corporate earnings that are likely to outpace global peers. Factors such as steady domestic investor inflows through systematic investment plans (SIPs), a potential resurgence of foreign investments, and expected US Federal Reserve rate cuts are expected to bolster the stock market.
India’s economic growth is forecast to recover from its current cyclical slowdown, supported by higher government capital expenditure, a revival in rural demand, improved urban consumption, and broader policy support.
“We expect India’s economic growth to recover from a cyclical slowdown and stay ahead of its major peers in 2025,” the report added.
Inflation is expected to trend lower in 2025, driven by declining food prices owing to improved crop sowing and potential government interventions to manage supply concerns. Disinflationary effects from previous policy tightening are also anticipated to ease inflationary pressures.
While the rupee faces near-term hurdles, India’s strong macroeconomic fundamentals and growth potential are likely to shape a resilient economic outlook for 2025. Despite external and domestic challenges, the broader trajectory suggests optimism for India’s financial and economic future.
