The USD/INR exchange rate continued its strong uptrend on Monday and is slowly nearing the important resistance point at 86. It has risen for nine consecutive weeks, its longest streak since 2013. So, what next for the Indian rupee in 2025?
Indian economic concerns
The USD/INR exchange rate has soared to a record high as the Indian economy has deteriorated this year.
A recent report by the country’s statistics agency showed that India’s growth in the third quarter stood at 5.8% much lower than the expected 7%. That number means the economy will struggle to hit the predicted 7% growth this year.
More data shows that India is now reporting substantial trade deficits, which impact the rupee. The most recent data showed that the country’s trade deficit in November surged to over $37.8 billion, higher than the previous year’s $20.6 billion.
India’s trade deficit jumped as imports soared by 27%, while exports rose by about 5.3% in the same period. Its monthly export figures were their lowest in over two years.
A rising trade deficit tends to hurt a currency because most of international trade is done in US dollars.
India is also seeing higher inflation, partly because of the deteriorating rupee. The most recent data by the statistics agency showed that the headline Consumer Price Index (CPI) dropped to 5.8% from the previous month’s 6.21%. These numbers are significantly higher than the year-to-date low of 3.65%.
Therefore, the Indian rupee has crashed as investors anticipate the Reserve Bank of India (RBI) to start cutting interest rates in the first quarter of 2025. Under Shaktikanta Das, the RBI maintained a highly aggressive monetary policy stance.
He pushed interest rates to 6.5% and maintained them there during the year as inflation rose. His view differed from that of other emerging market central banks, which started slashing interest rates during the year.
Das has left the RBI after being replaced by Sanjay Malhotra, who is expected to start easing borrowing costs in the first quarter. The governor may also be inclined to do some forex interventions to boost the currency. In a note, an analyst at HDFC Bank said:
“There’s going to be continued intervention from the RBI to limit the volatile moves, but given the pressure mounting on peers, particularly the Chinese Yuan, the rupee may not see very tight ranges.”
Strong US dollar
The USD/INR pair has also surged due to the strong US dollar following the Federal Reserve’s hawkish stance.
The bank slashed interest rates in the last monetary policy meeting in December, bringing the year-to-date cuts to 1%.
At the same time, the bank pointed to just two cuts in 2025 as officials indirectly warned about inflation under the Donald Trump administration. Some of his policies like on tariffs, lower taxes, and migration will likely lead to high inflation. This explains why the US bond yields have continued soaring this year.
USD/INR technical analysis
The weekly chart shows that the USD to INR exchange rate has been in a strong uptrend this year. It has risen and crossed the important resistance level at 85 and the upper side of the rising wedge pattern. The pair has moved above the 50-week moving average, while the MACD, the Relative Strength Index, and other momentum oscillators have pointed upwards.
Therefore, the pair will likely continue rising as bulls target the next key psychological point at 86. As geopolitical risks rise, more gains could see it jump to as high as 90 in the next few months.
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