2025 Currency Forecast: Will the Rupee Survive the Dollar’s Dominance?
New Delhi : Since Donald Trump’s victory in the US Presidential Elections, there has been a continuous decline in the rupee against the dollar. The Indian currency has fallen to around 85 rupees per dollar. On December 2nd, the rupee reached 84.76 rupees per dollar. Following Trump’s victory, the Dollar Index has been gaining strength, and speculations are rife that with his return to the White House in January, the dollar may further strengthen while other currencies, including the rupee, might weaken. The question arises: How much will the rupee fall in the new year 2025?
Rupee Will Fall Due to Donald Trump’s Decision!
Donald Trump’s government may impose heavy tariffs on foreign goods in the United States, which will make these items expensive for consumers. There is a risk of inflation increasing. Due to the anticipation of Trump’s decision, the US Central Bank Federal Reserve will have to maintain high interest rates. This decision by the Central Bank could strengthen the dollar further. Under his trade policy, Donald Trump may impose a tariff of more than 10 percent on imports, which is likely to impact the rupee. The rupee may see further weakness.
Foreign Currency Reserve Drops by 50 Billion Dollars
The Reserve Bank of India (RBI) has been exerting full effort to control the rupee’s weakness. The RBI has sold a large amount of dollars from its foreign currency reserves to curb the rupee’s decline. On September 27, 2024, the RBI’s foreign exchange reserves reached a record high of 704.88 billion dollars, which dropped to 656.58 billion dollars in the week ending November 22, 2024. In other words, the foreign currency reserve has fallen by about 50 billion dollars in two months. The primary reasons are the selling by foreign investors in the Indian stock market in October-November and the dollars sold by the RBI to support the rupee. Foreign investors sold 11 billion dollars worth of shares in October and 1.5 billion dollars in November.
The rupee’s weakness is further fueled by the fact that in October 2024, the retail inflation rate crossed 6 percent, and the food inflation rate approached 11 percent. Contrary to the RBI and government’s expectations, the economic growth rate in the second quarter of fiscal year 2024-25 has dropped to 5.4 percent. The manufacturing sector has shown the most significant weakness. This weakness in the Indian economy raises concerns about the rupee’s further decline in the coming months. If the rupee weakens, inflation in the country could increase as imports become more expensive. Siddharth Khemka, Head of Research at Motilal Oswal Financial Services Ltd, said that the GDP growth rate in the second quarter has come down to 5.4 percent, the lowest in seven months. Due to this economic weakness, the Indian rupee has fallen to a record low.
According to experts, if the rupee continues to weaken against the dollar, the RBI may continue to intervene, which will further reduce foreign exchange reserves. Moreover, given the current global situation, the likelihood of the rupee strengthening in 2025 appears very low, and the rupee may become even weaker against the dollar.
