The rupee falls by 3% in 2024 and is expected to gradually rebound in 2025

Last update:December 29, 2024, 2:07 p.m. IST

The rupee fell 3% against the US dollar in 2024, amid concerns over slowing economic growth and a stronger greenback in global markets.

In 2025, a number of global events are expected to influence currency market trends.

The rupee fell 3% against the US dollar in 2024, driven by concerns over slowing economic growth and a rise in the greenback in global markets, but it is among the least volatile currencies in the world. world and headwinds could be less intense in the coming year.

The rupee slipped to new lows at the end of the year as the resurgent dollar weighed on emerging market currencies.

The busy 2024 continued to impact the rupee exchange rate against major currencies, with a series of geopolitical events ranging from the Russo-Ukrainian war and the Middle East crisis. East to trade disruptions in the Red Sea and elections in several major economies.

Global factors, including actions taken by major central banks, have not only affected the rupee-dollar dynamic but also disrupted currency exchange rates across emerging economies.

In fact, the fall of the rupee against the dollar was less than its depreciation against other currencies. And this resulted in gains against the euro and the Japanese yen.

Then, RBI Governor Shaktikanta Das, in the central bank’s December bi-weekly monetary policy report, said the Indian rupee had remained less volatile than its emerging market peers.

Still, the Reserve Bank of India has been more active in its efforts to stabilize the rupee-dollar rate, thanks to increased demand for the greenback due to India’s dependence on oil imports and the deepening of the trade deficit.

“RBI was also seen actively intervening in the NDF (non-deliverable forward) markets to prevent sharp depreciation of the rupee,” said Naveen Mathur, Director – Commodities and Currencies, Anand Rathi Shares and Stock Brokers.

This was evident in foreign exchange reserves which declined from the record high of $704.89 billion at the end of September to $644.39 billion as of December 20, 2024, the lowest level in almost six months.

Foreign currency assets also include the effect of appreciation or depreciation of non-U.S. units such as the euro, pound sterling and yen held in foreign exchange reserves.

India’s external challenges intensified as China’s GDP growth slowed to 4.8 percent, reducing demand for Indian exports. Additionally, supply chain disruptions due to tensions in the Middle East and the escalating Red Sea crisis have affected the trade balance of several countries, including India.

The RBI’s log of the daily movement of the rupee exchange rate against major currencies showed that the national unit depreciated against the greenback by almost 3 per cent, from 83.19 on January 1 to 85.59 on December 27 this year, with a record decline of Rs 2. in the last two months.

It crossed the crucial level of 84 on October 10, crossed the Rs 85 per dollar mark on December 19 and even touched the lifetime low of 85.80 intraday on December 27, registering the fall on a single strongest day in almost two years.

However, the local unit witnessed a gain of 8.7 percent against the yen, rising from the rate of Rs 58.99 per 100 yen on January 1 to Rs 54.26 on December 27. And the gain has even increased to almost 9 percent since September 17. , when the rate reached the peak of Rs 59.63 per 100 units of the Japanese currency.

Similarly, against the euro, the rupee registered a gain of over 5 percent from its lowest level of Rs 93.75 per euro on August 27 to Rs 89.11 on December 27.

Experts attributed this trend to the unprecedented rise in dollar strength due to improving macroeconomic factors in the United States, which prompted the Federal Reserve to slow its monetary policy, as well as the results of the election presidential election in the world’s largest economy.

President-elect Donald Trump’s stated intention to raise tariffs on Chinese imports has spooked currency traders around the world, triggering a relentless run on the greenback, leading to a mass exodus of foreign capital from stock markets Indians. “The US dollar outperformed the market with a gain of 6.9 percent in 2024.

An improving US economy, weakness in Europe and geopolitical concerns have led to a rise in the US dollar, said Anuj Choudhary, research analyst at Mirae Asset Sharekhan.

Geopolitical tensions in the Middle East and the ongoing war between Russia and Ukraine have kept the safe-haven demand for the US dollar intact, Choudhary added.

The most significant weakness in the rupee was seen in the second half of 2024, particularly between October and December, due to large outflows by foreign institutional investors (FIIs), said Jateen Trivedi, vice president analyst at research – commodities and currencies, LKP Securities.

During this period, Indian stock markets saw around Rs 1.70 lakh crore of FII outflows, “which weighed heavily on the performance of the rupee”, he said.

However, the outlook for the Indian currency next year is relatively stable and expected to be between 82 and 87 against the dollar, said Ajit Mishra, senior vice president of research at Religare Broking Ltd.

“A potential recovery could be supported by government policy measures and improvements in domestic economic growth,” Mishra said.

In 2025, a number of global events are expected to influence currency market trends. The most significant signals are expected to come from interest rate changes by the US Federal Reserve and President Donald Trump’s trade measures, which risk making Chinese imports more expensive, fueling inflation in the world’s largest economy .

If the Trump administration adopts an ultra-protectionist stance, such an approach could disrupt global trade and capital flows, fueling volatility in asset classes and foreign exchange markets, said Anindya Banerjee, senior vice president : Head of Research: Currencies, Commodities and Interest Rates, Kotak Securities. .

“Protectionist policies could lead to increased inflationary pressures in the United States, forcing a reassessment of the Federal Reserve’s interest rate path. This in turn could affect global liquidity, emerging market currencies like the Indian rupee and the broader economic outlook,” he added.

Domestically, the RBI’s monetary policy stance regarding the need to maintain balance between inflation and growth and the government’s fiscal policy to be announced in the annual budget for FY26 are likely to be affected. affect the general feeling.

India’s economic growth, projected between 6.5 and 7.5 percent for 2025, could support the rupee, while the RBI’s monetary easing to boost growth could negatively impact the currency.

“For 2025, we expect the rupee to fall to Rs 87/USD. The rise may be limited to Rs 83,” said Choudhary of Mirae Asset Sharekhan, adding that China’s much-awaited fiscal stimulus in the first half and expected slowdown in the US economy in the second half would support the rupee later. .

(This story has not been edited by News18 staff and is published from a syndicated news agency feed – PTI)