As of January 22, 2025, the Indian rupee has shown signs of recovery, appreciating by 17 paise to 86.28 against the US dollar in early trade. This rise follows a previous close at 86.45, indicating a positive shift in the currency's performance [08494dda]. The dollar index also fell by 0.94% to 108.31, contributing to the rupee's strengthening [08494dda]. Additionally, Brent crude oil prices decreased slightly to USD 80.11 per barrel, which may alleviate some pressure on the rupee as oil is a significant import for India [08494dda].
However, UBS Group AG has recently issued a stark warning, suggesting that India's economy is entering a 'structural slowdown.' The firm has recommended shorting the Indian rupee and adopting an underweight stance on Indian stocks, citing weak credit growth and a decline in foreign direct investment (FDI) to only $3 billion over the past year [5512decb]. Manik Narain, head of EM strategy research at UBS, noted that Indian stocks are trading at a 72% premium compared to other emerging markets, which is deemed unsustainable [5512decb].
Despite the rupee's recent uptick, concerns remain regarding the overall economic landscape. India's foreign exchange reserves had recently fallen to $625.871 billion, marking a significant decline of $8.714 billion in the week ending January 10, 2025, the steepest weekly drop in two years [87284cfe]. The Congress party has attributed this decline to the Modi government's economic policies, highlighting that forex reserves were at an all-time high of $689.235 billion in September 2024 [87284cfe].
The rupee's depreciation has been notable, falling by 41.3% against the US dollar over the past decade, with a decline of 4.71% since January 16, 2024 [130470cf]. UBS anticipates a further depreciation of 2.6% for the rupee this year and advises buying bearish rupee options [5512decb]. The Reserve Bank of India (RBI) has intervened in the market to stabilize the currency, but the effectiveness of these measures has been questioned [87284cfe]. Economists remain cautiously optimistic, predicting that the rupee could stabilize around 85-86 per US dollar in the coming weeks [521dd44a].
The recent fluctuations in the rupee's value have been influenced by various global economic factors, including inflation moderation in the US and potential tariff policies from the Trump administration, particularly concerning trade with Canada, Mexico, and China [08494dda][87284cfe]. The upcoming 2025 Union Budget may also include measures aimed at stabilizing the rupee, such as raising import tariffs to support local industries [541211d8].
As the rupee continues to navigate these challenges, foreign institutional outflows have totaled USD 6.73 billion in January 2025, indicating investor caution [08494dda]. The economic outlook remains uncertain, with reports of investors losing ₹24.69 lakh crore in wealth over recent days [479dd16a].