Rupee may hit 85.5-86 against the dollar in 2025: DBS economist Taimur Baig

The rupee has been hitting new lows against the dollar and is expected to weaken further toward the ₹85.50-86 range in the January-March quarter of calendar year 2025, according to Taimur Baig, Chief Economist at DBS Group Research. The rupee is currently trading around ₹84.92 against the dollar.

Baig attributed the expected depreciation to "dollar exceptionalism," a phenomenon where the US dollar strengthens significantly due to factors like tariffs and restrictions imposed by the US, prompting global investors to shift away from emerging market currencies.

“This is not an India-specific phenomenon,” he said, adding that currencies across the region are expected to weaken against the dollar.

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The rupee's movement is currently tied to the broader emerging market foreign exchange (EMFX) trends. However, he expects that differentiation among currencies could emerge after January 20, when the reality of US policymaking under the White House sets in.

Countries with strong external momentum, such as India, are likely to outperform on the currency front compared to others with greater vulnerabilities to the US economy, he noted.  “You just cannot fight the dollar at times like this.”

He expects the US Federal Reserve to cut interest rates in its final 2024 policy meeting on December 17-18, which comes just weeks before Donald Trump’s inauguration as the 47th President on January 20, 2025.

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However, there is uncertainty about further rate cuts in early 2025, as the economy shows no signs of disinflation, and Trump's tax cuts and tariffs could increase inflation. The 50 basis points (bps) rate cut forecast for the first quarter of 2025 may need reconsideration, he said.

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