INR: Indian rupee on gentle one-way path down

The Indian rupee (INR) will break through 85 per US dollar to hit a new low in the next six months even as the Reserve Bank of India continues to intervene to stem the currency’s losses, according to a Reuters poll of FX strategists.

The results come days after news that growth in India, the world’s fastest growing major economy this year, unexpectedly slowed sharply to an annual 5.4% in the latest quarter, triggering speculation the RBI may cut interest rates on Friday.

Only five of the 67 economists polled by Reuters in late November expected a rate cut at this month’s meeting, with most opting for two quarter-point moves in the first half of 2025.

In the meantime, U.S. President-elect Donald Trump’s proposed tariffs, which are widely expected to create more inflation in the world’s largest economy, have pushed up the dollar by nearly 6% since October.

Since early October, the RBI has spent nearly $50 billion from its vast FX reserves to shield the Indian rupee from the dollar’s relentless strength, but it still weakened to a record low of 84.74/$ on Tuesday.

Foreign investors have pulled more than $13 billion from the country over the same period.
The Dec. 2-4 Reuters poll of 41 FX strategists forecast the rupee to trade around 84.85 to the dollar and 85.12 to the dollar in three and six months, respectively, survey medians showed, new lows.

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The Indian rupee was trading at around 84.72/$ on Wednesday.

“The only way for USD/INR is weaker, and this time around it’s even more pressing for two reasons. One is the external headwinds… and the second is the domestic macro mix has changed for the worse,” said ANZ FX strategist Dhiraj Nim.

“With every Trump tweet, you have some FX pressure being felt for EM currencies, especially if your own country is being named,” he said, adding the rupee was expensive compared to other Asian currencies and probably has to weaken more.

Median forecasts showed the currency would weaken around 1% to 85.49 to the dollar in a year, with expectations ranging from 82.17 to 88.00.

The trade-weighted real effective exchange rate (REER) shows the rupee is overvalued by around 7%, according to RBI data. This suggests there is plenty more scope for the RBI to manage a steady decline in the currency.

“We are still the fastest-growing economy in the world and I do expect the downturn can be countered by more government spending, small cuts in interest rates and keeping the currency weak in the way it has been kept so far,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.