Indian Rupee To Appreciate Marginally During FY25 To Around 82 Levels: Report

CareEdge Ratings in a report has said the Indian rupee is likely to appreciate marginally during FY25 to around 82 levels, supported by India’s favourable fundamentals, including a comfortable current account deficit (CAD) of around 1 per cent of gross domestic product (GDP) and an expected surge in foreign portfolio investment (FPI) inflows following general elections and inclusion in global bond indices. 

The agency in the report added that the Reserve Bank of India (RBI) interventions are expected to limit any rupee volatility.

It stated, “Rupee has traded in a narrow range supported by RBI interventions. CYTD rupee has performed better than developed market currencies (GBP, EUR and JPY). Further, it is the best-performing Asian currency after HKD. The rupee’s volatility remains relatively low.”

The central bank had net outstanding forward sales of USD 0.5 billion as of end-FY24 compared to net outstanding forward purchases of USD 23.6 billion a year ago.  RBI turned net buyer of the dollar in the spot market in FY24 to contain rupee volatility amidst strong inflows.

Talking about the ten-Y GSec yield, the report mentioned that it is likely to range between 6.5 to 6.6 per cent by the end of FY25. RBI’s higher-than-expected dividend transfer of Rs 2.1 lakh crore allows room for the government to move towards fiscal consolidation and reduce market borrowings. 

India’s index inclusion should support GSec demand. “We expect the RBI to maintain the status quo in the June meeting. The RBI may proceed with rate cuts in Q4 CY24 if inflation moderates, although the expected rate cut cycle is likely to be shallow, of 50bps (25bps each in Q4 CY 24 and Q1 CY25)," the agency added.