Rupee To Touch 87 Vs USD By Mid-2025, Says Nomura

Nomura expects the rupee to touch 87 against the US dollar by the middle of 2025, but there can be an “overshoot” due to global developments, the brokerage firm’s Managing Director and Chief Economist (India and Asia ex-Japan) Sonal Varma has said.

The rupee strengthened by 6 paise to open at 86.52 against the US dollar on Tuesday. On Monday, the Indian currency posted its worst intraday decline against the dollar since Feb. 6, 2023, dropping 62 paise to a record low of 86.60 per US dollar. It closed at a record low of 86.58 per dollar, according to Bloomberg data.

In a chat with NDTV Profit, Varma said that the Reserve Bank of India has perhaps taken a shift in its foreign exchange management policy, letting the rupee weaken.

“There seems to be some shift in the RBI’s FX (foreign exchange) management strategy. So compared to the very heavy FX intervention, they are allowing the currency to weaken a bit more, which in our view is the right strategy,” she said.

The top executive noted that this change in strategy could mean that inflation may increase.

“That means that there would be some imported inflation in the country, and the consequent impact on the monetary policy as a result of this,” she told NDTV Profit.

Speaking on whether the rupee will weaken to 90 against the dollar, Varma mentioned that it is dependent on how things play out globally. She revealed that Nomura is currently pegging it at 87 by mid-2025.

“It's a function of how globally things play out. Our current forecast, which is actually getting closer to the spot rate right now, is 87 by mid-2025,” she said.

“Can there be an overshoot, because of global developments? Definitely. But I think this is the right strategy because the alternative of trying to peg the INR at a certain level, with the consequence that we tighten domestic liquidity even substantially doesn't really work in India's case,” Varma added.

She highlighted that in a banking-driven economy like India, capital inflows are growth-sensitive and therefore, it is important to stabilise growth to stop more capital outflows.

“This is because you have an economic system which is more banking-driven. The kind of capital inflows we get are more growth-sensitive capital flows. So, it is important to also stabilise growth expectations in India and if growth expectations don't stabilise, then the risk is we will see some more capital outflows, irrespective of what happens globally,” the top executive said.

To counter this risk, the government in its upcoming Budget must send a “clear signal” that it is on track for fiscal consolidation, Varma said.

“We are in a global backdrop where there is a big focus on what's happening on fiscal finances. So it is important that in the coming Budget, we send a very clear signal that the government is continuing down the path of fiscal consolidation that it had laid down previously,” she said.