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The Indian rupee (INR) is expected to face challenges in 2025 due to multiple global and domestic factors, according to a report by Standard Chartered Bank.
The report noted that the key pressures include slowing foreign direct investment (FDI) inflows, weak manufacturing exports, and a narrowing policy rate differential with the United States. It said "slowing FDI flows, weak manufacturing export growth amid slowing global demand and narrowing policy rate differential with the US are likely to pressurize the INR". The report projects the rupee to trade with a modest depreciating trend, reaching 85.5 per US dollar over the next 12 months. While certain factors like India's improving economic growth, attractive real yields, stable balance of payments due to its inclusion in the global bond index, softer commodity prices, and strong foreign exchange reserves held by the Reserve Bank of India (RBI) are supportive of the currency, they may not be enough to offset other pressures. It said "We expect the INR to trade with a modest depreciating bias to 85.5/USD over a 12-month time horizon". On the bright side, the report highlighted several positive drivers for Indian equities. It noted that India's GDP growth and corporate earnings are likely to outpace those of major global peers. Additionally, steady domestic investor inflows through systematic investment plans (SIPs) and a resumption of foreign investments--spurred by superior macroeconomic fundamentals, expected US Federal Reserve rate cuts, and relatively low foreign investor positioning--are expected to provide strong support for Indian stocks. The report also forecasted a recovery in India's economic growth from its current cyclical slowdown, underpinned by factors such as higher government capital expenditure, a recovery in rural demand, improved urban consumption, and broader policy support. It said "We expect India's economic growth to recover from a cyclical slowdown and stay ahead of its major peers in 2025". As per report, inflation is expected to trend lower, driven by a decline in food prices due to better sowing of summer and winter crops and potential government measures to manage supply concerns. Additionally, disinflationary effects from past policy tightening are expected to play a role in reducing inflationary pressures. Despite challenges for the rupee, the report underscores India's resilience, pointing to its strong macroeconomic fundamentals and growth potential as key factors shaping its economic outlook for 2025. (ANI)
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