Rupee falls 3% in 2024; In 2025, turbulence will slow down

The Indian rupee tumbled 3 percent in 2024 as concerns over slower economic growth and the greenback’s global strength weighed, but it was one of the world’s least volatile currencies and headwinds could be less severe next year.

The rupee settled at fresh lows as the year closed as the dollar’s resurgence weighed on emerging-market currencies.

With a series of geopolitical events ranging from the Russia-Ukraine war and the crisis in the Middle East to trade disruptions in the Red Sea and elections in several major economies, the action-packed 2024 continued to affect the rupee’s exchange rate against major currencies.

Global factors, including measures taken by major central banks, have disrupted not only rupee-dollar dynamics but also currency exchange rates in all emerging economies.

In fact, the depreciation of the rupee against the dollar has been less than its depreciation against other currencies. And it has ended with gains against the euro and the Japanese yen.

Former Reserve Bank of India (RBI) governor Shaktikanta Das also said in the central bank’s December bi-monthly monetary policy that the Indian rupee has been less volatile than its peers in emerging markets.

However, with India’s dependence on oil imports and growing trade deficit increasing demand for the greenback, the RBI has been more proactive in its efforts to stabilize the rupee-dollar rate.

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

This was evident in foreign exchange reserves, which fell from a record high of USD 704.89 billion at the end of September to USD 644.39 billion by December 20, 2024, the lowest level in nearly six months.

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

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

The RBI’s log of daily exchange rate movements of the rupee against major currencies showed that the local unit has depreciated by nearly 3 percent against the greenback from 83.19 levels on January 1 to 85.59 on December 27 this year, with a record decline of 2 rupees in the last two months.

It breached the crucial 84 level on October 10, December 19 at Rs. It breached the 85-a-dollar mark and also touched a lifetime low of 85.80 intraday on December 27, marking its biggest one-day decline in nearly two years. .

However, the local unit has seen an 8.7 percent appreciation against the yen which on January 1 stood at Rs. 58.99 per 100 yen on December 27 to Rs. was 54.26. And since September 17, this gain has increased to nearly 9 percent. While the rate per 100 units of Japanese currency is Rs. reached a peak of 59.63.

Similarly, against the Euro, the rupee on August 27 stood at Rs. 93.75 per euro on December 27 from a low of Rs. At 89.11, it registered an increase of more than 5 percent.

Experts attributed the trend to the unprecedented increase in dollar strength due to improved macroeconomic factors in the US, which prompted the Federal Reserve to move slowly toward easing monetary policy, and the results of the presidential election in the world’s largest economy.

President-elect Donald Trump’s announced intention to raise tariffs on Chinese imports spooked currency traders around the world, triggering a sustained chase for the greenback, leading to a massive exodus of foreign capital from Indian equity markets.

“The US dollar outperformed the market with a gain of 6.9 percent in 2024. The US dollar surged due to an improving US economy, weakness in Europe and geopolitical concerns,” said Anuj Chaudhary, research analyst at Mira Asset Sharekhan.

The rupee witnessed the most significant weakness in the second half of 2024, particularly between October and December, due to significant foreign institutional investor (FII) outflows, said Jatin Trivedi, VP Research Analyst – Commodity & Currency at LKP Securities.

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

However, the outlook for the Indian currency next year is relatively stable and is expected to remain between 82 and 87 against the dollar, said Ajit Mishra, SVP, Research, Religare Broking Ltd.

“Potential recovery can 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 signs are expected to come from interest rate moves by the US Federal Reserve and trade measures by President Donald Trump that are likely to make Chinese imports more expensive, fueling inflation in the world’s largest economy.

If the Trump administration takes an ultra-protectionist stance, such an approach could disrupt global trade and capital flows, fueling volatility in asset classes and currency markets, said Anindya, SVP, head of currency, commodity and interest rate research at Kotak Securities. Banerjee said. .

India’s economic growth, projected at 6.5-7.5 percent for 2025, could support the rupee, while monetary easing by the RBI to stimulate growth could adversely affect the currency.

“For 2025, we expect the rupee to depreciate to Rs 87/USD. Upside may be limited to Rs 83,” said Mir Asset Sher Khan’s Chaudhary, adding that the first half China’s long-awaited fiscal stimulus is expected to slow down over the period. The US economy will support the rupee later in the second half.