Indian Rupee Faces Depreciation Risks in 2025 Amid Global and Domestic Challenges: Report

Weak FDI inflows, export slowdown, and narrowing policy rate differential with the US pose challenges, but strong economic fundamentals offer resilience.

New Delhi, December 26: The Indian rupee (INR) is expected to face depreciation pressures in 2025 due to multiple global and domestic headwinds, according to a Standard Chartered Bank report released on Tuesday.

Key Challenges for the Rupee

The report highlighted three primary concerns impacting the rupee’s performance:

• Slowing Foreign Direct Investment (FDI) inflows
• Weak manufacturing export growth amid subdued global demand
• Narrowing policy rate differential with the United States

“Slowing FDI flows, weak manufacturing export growth amid slowing global demand, and narrowing policy rate differential with the US are likely to pressurize the INR,” the report stated.

As a result, the report forecasts the rupee to depreciate modestly and trade around 85.5 per US dollar over the next 12 months.

Supportive Economic Factors

Despite these challenges, several positive drivers are expected to cushion the rupee against steep depreciation:

• Improving economic growth outlook
• Attractive real yields for investors
• Stable balance of payments due to inclusion in the global bond index
• Softer commodity prices
• Strong foreign exchange reserves maintained by the Reserve Bank of India (RBI)

However, these supportive factors may not entirely offset the downward pressures on the currency, the report cautioned.

Bright Spot: Indian Equities and Economic Growth

On a positive note, the report pointed out a promising outlook for Indian equities, driven by:

• Robust GDP growth outpacing global peers
• Strong corporate earnings momentum
• Steady domestic investor inflows through Systematic Investment Plans (SIPs)
• Renewed foreign investment interest due to macroeconomic stability and expected US Federal Reserve rate cuts

“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 Trends and Policy Measures

The report projects lower inflation levels in 2025, driven by:

• Better sowing of summer and winter crops
• Government measures to manage supply concerns
• Disinflationary effects from previous monetary policy tightening

India’s Resilience Amid Global Challenges

Despite the anticipated depreciation of the rupee, Standard Chartered Bank emphasized India’s resilience backed by its strong macroeconomic fundamentals and sustained policy support.

The report concludes that while external and domestic challenges persist, India’s robust economic growth, strategic policy measures, and investor confidence will play a crucial role in shaping its economic trajectory in 2025.