Barclays revises rupee forecast, sees currency falling to 89.5/$ by end 2025
This story was originally published at 18:51 IST on 16 January 2025
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NEW DELHI – Barclays has revised its forecast for the rupee and now expects the Indian currency to fall to 89.5 a dollar by the end of 2025. The bank's earlier forecast was that the rupee would end the calendar year at 87.0 a dollar.
Barclays expects the rupee to continue to depreciate given the strong dollar, "still relatively rich valuation", a looser stance by the Reserve Bank of India, and a reduction in portfolio flows. The rupee ended at 86.55 against the dollar on Thursday.
"We think INR (rupee) risks are on the downside should the CNY (Chinese yuan) depreciate more than expected," Barclays said in a report Thursday. "INR overvaluation, a growing RBI forward book, and broad USD (dollar) strength remain factors likely to push the INR weaker."
According to strategists at Barclays, there has been a change in stance under RBI Governor Sanjay Malhotra, who replaced Shaktikanta Das in December, and the central bank is likely to be more flexible on the rupee with more volatility ahead.
The rupee has depreciated 1.1% against the dollar so far in January, hitting a record low of 86.65 a dollar Tuesday. Barclays said it was not a coincidence that the bulk of the decline in the rupee and increase in volatility have taken place since Das's departure.
According to Barclays, the Indian rupee will need to fall further to improve the country's competitiveness, with the dollar seen strengthening. The nominal effective exchange rate has not declined "significantly" as the fall in the rupee has not been particularly sharp relative to other Asian currencies, it said.
Barclays estimates that India's foreign exchange reserves of $635 billion offer an import cover of 10.5 months. "While 8-10 (months) is a good import cover, given the current situation, the RBI could still run down its FX reserves book by around $120 billion without ringing alarm bells.... However, the RBI may now use this route only sparingly, to curb volatility," the bank said.
Given that the pressures on the rupee are arising from strength in the dollar and reversal of capital flows, Barclays said announcing supportive policy measures to further compress the current account deficit may not help. "India's authorities are more likely to announce capital flow augmenting measures to help slow rather than stem the one-way move in INR," Barclays said in the report. "Supportive policy measures to further compress the current account deficit may not be very useful, given the issues are more related to the capital account."
The RBI or the government could also explore other steps to prevent a further fall in the rupee, including a forex swap window for oil companies, as was done in 2013, Barclays said. End
US$1 = INR 86.55
Reported by Shubham Rana
Edited by Rajeev Pai
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