INR Predictions For 2025

(MENAFN- Kashmir Observer)
Representational Photo

The Indian rupee (INR) has benefited from the strong economic growth of the country in recent years, with the 2023-24 fiscal year ending with a 8.15% YoY growth.

However, a changing geopolitical climate presents some challenges to the Indian Economy and growth is expected to slow somewhat in 2025.

For example, Deloitte expects the economy to grow by 7-7.2%. As inflation slows down and the geopolitical turbulence across the world reduces, the Indian rupee stands to benefit, thanks to a strong balance sheet and stronger export figures of value-added goods.

With a change in administration in the United States and trade disputes heating up, many FX investors will be eyeing the INR to see how the Indian economy tackles the challenges looming ahead.

When learning FX trading for beginners , the issue of fundamental factors affecting a particular currency cannot be understated.

In fact, trade statistics, GDP growth, fiscal and monetary policies all play a key role in the performance of the INR on the global FX market.

To overview, here are some notable fundamental factors taking shape in the Indian economy that can have a net positive effect on the currency heading into 2025:

• Strong economic growth – Despite a challenging period for global trade and shipping, the Indian economy has been growing at a strong pace. While the growth rate is likely to drop from 8 to 7% in 2025, it still gives consumers and businesses in India the necessary activity to grow the wealth of the country and beat the inflation rate in the process
• Low fiscal deficit – The fiscal deficit of the Indian economy has shrunk to 5.63% of GDP, which is a positive development and lower than the forecasted 5.9% deficit
• Demand exceeding supply – The 1.8% gap between the demand and supply in the Indian economy may seem like a challenge, but it also indicates that the country has more space to grow its industrial base and produce more value-added products in 2025 as well

These are only a handful of factors that affect the health of the Indian economy and, subsequently, the performance of the rupee on the FX market.

The USD/INR exchange rate reads a value of 85 as of this writing and a strengthening U.S. dollar, caused by the inflation brought about by the reshoring of the country's manufacturing sector, is likely to tilt the exchange rate in the favor of the greenback.

85 has been considered as a key psychological level for the market and a break above this value could see the U.S. dollar gain more ground over the INR across 2025.

If the Federal Reserve opts to raise interest rates for the U.S. dollar, INR is less likely to keep up with the dollar in the short-term, which is compounded by the attitude of the Trump administration to cut spending and reduce the deficit, which can make dollar bonds more attractive to investors.

Therefore, the USD/INR pair is likely to reach above 85 over the next 12 months of trading, with added pressures on the Indian economy caused by lower Crude oil prices and the threat of U.S. tariffs hitting the nation's exports.

Energy trading has been a major tailwind for the Indian economy in 2024, which is unlikely to persist in the long run, especially if the Russian invasion of Ukraine is concluded with a peace deal in 2025 and some sanctions are lifted from the Russian economy.

On the other hand, India's drive for self-reliance in the energy sector and a push for nuclear energy, is likely to positively influence the country's long-term economic outlook.

In the short term, INR is likely to lag some of its Asian counterparts, thanks to lower crude oil prices and capital inflows.

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