Experts in India are predicting that in order to reduce volatility, the Reserve Bank of India will keep interfering in the currency market. If other Asian currencies continue to decline, the central bank might also permit the rupee to drop with minimal assistance.
Expectations of a strong dollar, fueled by the US Federal Reserve’s rate trajectory and US government policies under the next President, are expected to keep the Indian rupee, which has been weakening over the past few weeks, under pressure in 2025, experts said.
They also stated that the Indian Union Budget in February and geopolitical tensions would have a significant impact on the movement of the rupee.
Going forward, exogenous factors—specifically, the Fed’s trajectory and the US government’s are planning under the incoming President—are probably going to have a bigger impact on the rupee’s decline.
According to Aditi Gupta, an analyst at Bank of Baroda in India, “the odds are increasingly tilting towards a stronger dollar in 2025, which suggests that the pressure on INR will likely remain the same in early year of 2025 .”
A strong dollar index, the possibility of fewer rate cuts by the US Federal Reserve in 2025, India’s slow growth, the widening merchandise trade deficit, and outflows of foreign portfolio investors for equities have all contributed to the Indian rupee’s recent headwinds.
Every other day, the rupee has fallen to record lows due to increased volatility.The rupee lost value against the US dollar over the past two months, falling from 84.0837 on October 30 to 85.6200 on December 31
Due to the increased volatility of the rupee, the Reserve Bank of India has been compelled to extensively engage in both the forward and spot markets.