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Informist, Friday, Jan. 10, 2025

 

NEW DELHI – The rupee is expected to fall to 87 a dollar by the end of 2025, given the downward pressure from a strong dollar index and expectations of the index strengthening further once US president-elect Donald Trump assumes office on Jan. 20, a report by Capital Economics said.

 

The report said that the recent sharp downward movement in the rupee, which "notably...has coincided with a change in leadership at the RBI", could lead to the Indian currency falling to 87 a dollar sooner. "...A somewhat more laissez-faire approach to currency management under the new leadership means the rupee could well hit our end-year forecast sooner, and depreciate by a bit more than we expect over the next 12 months," Capital Economics said in its report.

 

For most of 2024, the rupee was one of the most stable currencies amongst those of emerging market economies. The report cited the policy of the Reserve Bank of India's intervention in the foreign exchange market to mitigate the volatility as the reason for the stable rupee last year. 

 

However, in December, the rupee weakened 1.2% against the US dollar, the report said. It said while the change was still smaller compared to other emerging market currencies, the fall in December constituted 40% of the rupee's depreciation in the whole year. The rupee has further weakened 0.3% against the US currency so far this month, the report said.

 

The report noted that the sharp depreciation in the rupee from December coincided with the change of the RBI governor – from Shaktikanta Das to Sanjay Malhotra – who took charge on Dec. 11. "This begs the question whether the RBI has subtly shifted its FX strategy to a more market-driven approach under the new management," the report said. It is too early to answer the question, the report said.

 

Since Dec. 11, the day the new governor took charge, the rupee has fallen by over one rupee, or 1.3% against the US dollar. 

 

Friday, the rupee fell to a low of 85.9700 a dollar before closing at 85.9650 a dollar. Further, the report mentioned how the rupee's option-implied volatility against the dollar has hit the highest in nearly 18 months.

 

However, it also noted that the Indian rupee's real effective exchange rate against a basket of 40 currencies, in terms of trade-based weights, has hit an all-time high. The rupee's real effective exchange rate rose to a record 108.14 in November from 107.20 in October.  End

 

US$1 = INR 85.9650

 

Reported by Sourabh Kumar

Edited by Ashish Shirke

 

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