RBI's Policy Stance May Exacerbate Rupee Pressure Amid Global Economic Challenges

The Indian rupee is expected to face increased pressure in 2025 due to a combination of global economic factors and the Reserve Bank of India's (RBI) monetary policy stance. Experts predict that the rupee could depreciate further against the US dollar, with forecasts suggesting it may range between 86.25 and 88.00 by the end of March 2025.

The RBI's strategy to manage currency volatility involves intervening in the foreign exchange market. However, the central bank may allow the rupee to depreciate slightly if other Asian currencies follow a similar trend, aiming to maintain export competitiveness. This approach could put additional pressure on the rupee, especially if the US Federal Reserve maintains a strong dollar through its interest rate policies.

Moody's Analytics has warned of a challenging year for India, citing inflationary pressures and a weakening rupee as significant risks. The RBI faces a delicate balance between managing growth, inflation, and currency stability, which may lead to a cautious monetary stance in the first half of 2025.

Despite these challenges, experts believe the rupee is no longer significantly overvalued, with its real effective exchange rate (REER) closer to historical averages. Lower crude oil prices, if sustained, could also support the rupee by improving India's trade balance.

Sources: Economic Times, MoneyControl, CNBC TV18, Moody's Analytics.