New Delhi: The Indian rupees The greenback fell to a record low of 85.24 against the greenback in early trade on Thursday, weighed down by rising U.S. Treasury yields and losses in most Asian currencies. The rupee, which closed at 85.20 on Tuesday, opened lower after a mid-week holiday in Indian financial markets.
The yield on the 10-year U.S. Treasury rose to its highest level since late May, pushing the dollar index near a year-to-date peak. The offshore Chinese yuan also weakened to 7.3070 per dollar, adding to pressure on the regional currency.
A recent report by Standard Chartered Bank highlighted several headwinds likely to challenge the rupee in the year ahead. Key pressures include falling foreign direct investment (FDI) inflows, weak manufacturing exports amid muted global demand, and policy rate cuts with the US.
“Deceleration in FDI inflows, weak manufacturing export growth, and narrowing of the policy rate differential with the US are likely to weigh on the INR,” the report said. It projects a slight depreciation of the rupee over the next 12 months, to 85.5 per US dollar.
Despite these challenges, some factors could support the rupee. India’s strong economic growth, attractive real output, stable balance of payments from its inclusion in global bond indices, commodity prices, and strong forex reserves are all positive indicators.
However, these drivers may not be sufficient to counteract the downward pressure. “We expect the INR to trade with a slight bearish bias at 85.5/USD over a 12-month time horizon,” the report said.
The report also paints a favorable picture for Indian equities, with strong GDP growth and corporate earnings that could outperform global peers. Factors such as steady domestic investor inflows through structured investment plans (SIPs), a possible recovery in foreign investment, and an expected US Federal Reserve rate cut will boost the stock market.
India’s economic growth is forecast to moderate from its current cyclical slowdown, supported by higher government capital spending, recovery in rural demand, improvement in urban consumption, and broader policy support.
“We expect India’s economic growth to recover from a cyclical slowdown and outpace its major peers in 2025,” the report added.
Inflation is expected to moderate in 2025, due to lower food prices due to better planting of crops and possible government interventions to manage supply concerns. The inflationary effects of previous policy tightening are also expected to moderate inflationary pressures.
While the rupee faces near-term headwinds, India’s strong economic fundamentals and growth potential are likely to shape a resilient economic outlook to 2025.