Near-term Cheer Likely For Indian Rupee; Headwinds Remain For Rest Of FY25

The Kotak Mahindra Bank in its latest report has said that there will be some near-term cheer likely for the Indian rupee, however, headwinds will remain for the rest of the financial year (FY) 2025.

The report titled "Economy: Comfortable External Balance Dynamics" stated, "We remain wary of risks from any repricing of FOMC’s rate cycle, CNY devaluation and BOJ actions, which could result in the unwinding of carry-trades."

It mentioned, "We pencil in the Indian rupee average at 83.1 (earlier 83.4) against the USD in FY2025E."

Talking about the external sector, the report mentioned that it is going to remain favourable along with front-loaded Indian rupee support. The bank in the report estimated a current account surplus of USD 4.4 billion and a BOP surplus of USD 19.9 billion in 4QFY24. 

"We revise down our FY2024E CAD/GDP to 0.8 per cent (from 1.1 per cent) factoring in a narrower goods trade deficit, and strong services surplus and remittances. A firmer capital account surplus (aided by strong FPI and banking capital flows) is likely to result in a BOP surplus of around USD 53 billion," the report stated. 

In FY2025, the bank also revised down FY2025E CAD/GDP to 1.1 per cent (from 1.4 per cent), though wider from FY2024 assuming firmer domestic demand compared to global demand. 

However, Kotak Mahindra Bank in the report stated that it remains wary of risks from protracted geopolitical tensions, volatility from the varying pace of DM rate-cut cycles and uncertainty on the timing and magnitude of the global slowdown.