SAR to INR Forecast 2025 and Beyond: Indian Rupee's decline to continue despite higher rate cut expectations

The Indian rupee reached a record low against the U.S. dollar in early 2025 driven by capital flight from Asian equities amid U.S.-China trade tensions, the Indian rupee, faced heavy selling pressure which was driven by renewed fears of a trade war after Donald Trump threatened steep tariffs on BRICS nations developing a common currency.

The INR/USD pair saw fluctuations as traders reacted to Trump’s stance on global trade. Trump's tariff threats may have created a risk-off sentiment, leading to broad declines in emerging market currencies.

The Reserve Bank of India has reduced its interventions in the foreign exchange market, allowing the rupee to face more volatility. With outflows from local equities expected, analysts predict the rupee may drop further, potentially reaching 88 per dollar by March.

Here we look in more detail at what has been driving the rupee price and where it may go next, including the latest SAR to INR forecast for 2025, 2026, and 2030. 

SAR to INR Forecast 2025– Summary

• SAR to INR Forecast Q12025: The Indian Rupee remains on the downside, analysts forecasting SAR to INR to be priced at 23.1609 by the end of this quarter.
• SAR to INR Forecast 2025: RBI may step back from heavy intervention but will likely implement measures to manage rupee depreciation. Looking ahead, experts forecast SAR to INR to be priced at 23.2996 in one year.
• SAR to INR Forecast for the next 5 years: While big banks forecast SAR to INR to keep the 23.00 level in 2025, some AI-based websites are pointing towards an SAR to INR 25.38 at the end of 2026 and at 28.47 by 2029.

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SAR to INR Forecast – Fundamental Outlook

Short-Term Forecast: SAR/INR is expected to be priced at 23.1609 by the end of this quarter and at 23.2996 in one year, higher than previous estimates. INR weakness has accelerated due to external and domestic pressures, leading to a cautious outlook.

Key Drivers of INR Weakness:

• Trade Imbalances: Higher gold imports and weaker goods exports have widened the current account deficit to 1.4% of GDP from the previous 1.2% forecast.
• Capital Outflows: FDI repatriation and outward direct investment have outpaced inbound flows, contributing to rupee depreciation.
• Portfolio Flows: High equity valuations and narrowing rate differentials make India less attractive for foreign investors. The potential inclusion of Indian bonds in the BBG Global Agg Index could provide support in H2 2025.
• Global Factors: A more hawkish Fed and potential trade policies under a Trump administration add pressure on emerging market currencies, including INR.
• RBI Policy Response: The Reserve Bank of India may reduce intervention, allowing INR to weaken gradually while implementing targeted measures such as:
  - Raising gold import duties
  - FX swap windows for oil companies
  - Export conversion rules to manage rupee depreciation

RBI is still expected to cut rates by 75bps but may delay the timing due to the weaker rupee.

Market Developments in December 2024:

• The INR declined, driven by global factors and a stronger U.S. dollar.
• The onshore FX forward curve inverted, with short-term implied yields rising sharply, reflecting increased FX risk premiums.
• Banking system liquidity tightened despite a 50bps CRR cut, causing a temporary rise in call rates.
• FX volatility remains low historically but has increased across the curve.

Balance of Payments Outlook: India’s balance of payments deficit is expected to persist in H1 2025 but may improve later.

• The current account deficit is forecasted at 1.5% of GDP for FY2024/25 and 1.4% for FY2025/26, up from previous estimates.
• FDI repatriation remains elevated, with foreign investors pulling funds and resident companies increasing overseas investments.
• Portfolio flows may face headwinds from global risks, but Indian bond inclusion in global indices could bring inflows in H2 2025.

Overall Outlook: INR is projected to be under pressure in 2025 due to weaker capital flows, a widening current account deficit, and global uncertainties. RBI may step back from heavy intervention but will likely implement measures to manage rupee depreciation.

Economic Outlook and Structural Trends

The Indian rupee (INR) is expected to weaken further, with USD/INR projected to reach 88.0 by Q1 2025 and 88.50 by Q4 2025. This is an upward revision from previous estimates, reflecting a faster-than-expected decline in INR value. Several factors are contributing to this trend. A surge in gold imports, weak goods exports, and higher foreign direct investment (FDI) repatriation are weighing on the currency. Additionally, declining portfolio inflows due to high equity valuations and narrowing interest rate differentials are reducing capital inflows. Rising hedging demand from Indian corporates managing FX exposure is further pressuring the rupee. Given these challenges, India’s current account deficit (CAD) is now expected to widen to 1.4% of GDP, up from 1.2%, making INR more vulnerable.

Global and domestic factors are also keeping INR under pressure. The U.S. Federal Reserve's cautious stance on rate cuts is keeping U.S. bond yields high, strengthening the dollar and reducing the attractiveness of emerging market currencies like INR. A second Trump presidency could add further uncertainty, potentially leading to higher tariffs and trade disruptions that may affect India’s export and investment climate. Despite recent depreciation, INR remains overvalued against trade-weighted currency baskets, making Indian exports less competitive. The domestic credit cycle is showing signs of weakening, which could weigh on economic growth and investor sentiment. One potential support factor for INR in the second half of 2025 is India's possible inclusion in the Bloomberg Global Aggregate Bond Index, which could attract more foreign capital into Indian bonds and provide some stability.

The Reserve Bank of India (RBI) is likely to reduce FX market intervention, allowing the rupee to adjust gradually rather than defending a specific level. However, the RBI is expected to manage extreme volatility rather than let INR fall sharply. To curb excessive depreciation, the central bank may introduce measures such as higher gold import duties, FX swap windows for oil companies, and export conversion rules to ensure exporters bring in more foreign exchange. While the RBI is still expected to cut rates by 75 basis points, these cuts may be delayed balancing inflation risks and INR stability.

India’s economic indicators show a mixed picture. While growth remains resilient, some sectors are beginning to moderate. Industrial and trade activity rebounded in October, with stronger car and two-wheeler sales driven by festive demand. Goods exports rose 17% year-over-year, and GST collections recovered after hitting an eight-month low in September. However, bank credit growth is slowing, particularly in services and personal loans, indicating a potential cooling in domestic demand.

Despite global risks, India’s macro stability risks appear manageable. Inflation is expected to moderate to 4-4.5% in FY26, the fiscal deficit is projected to narrow to 7.4% of GDP, and the current account deficit is likely to remain below 2% of GDP. India’s structural growth story remains strong, with GDP growth expected to stay around 6.5% annually from FY26 to FY28, supported by a manufacturing and export push, digitalization, and rising services exports. By 2027, India is set to become the third-largest global economy, surpassing Japan and Germany, with nominal GDP projected to exceed $6 trillion by 2030.

The rupee is expected to remain under pressure amid global uncertainties. USDINR could reach 90.0 by FY26, compared to 88.5 in FY25. Indian government bond yields are projected at 6.25% in FY26, slightly lower than 6.5% in FY25. The near-term trajectory of INR will depend on RBI’s intervention strategy, foreign investment flows, the global rate cycle, and geopolitical developments. If external pressures ease and capital inflows strengthen, INR depreciation could slow. Otherwise, continued FX outflows and policy uncertainty could push USD/INR toward the higher end of projections. 

Preparing for a new generation of consumers

In our 2024 Indian Rupee forecast and price predictions, we emphasized the clear trend towards increased expenditure on upscale and luxury products and services, along with the implications for this category of spending for the future growth of the middle class. To identify spending categories across different Indian states, we performed a thorough examination of the data from the HCES, which was issued in June 2024 Indian Rupee Forecast and Economic Outlook.  

Over the last ten years, urban households have outspent their rural counterparts, with the former spending, on average, INR 2,686 more per month in 2022–2023 than the latter (up from INR 930 in 2009–2010). Nevertheless, rural communities' spending patterns in the food and nonfood categories have rapidly surpassed those of urban ones.

• A change towards a diet higher in protein: In terms of food, there has been a noticeable movement away from foods high in carbohydrates and towards foods higher in protein, especially in rural areas.  
• Processed foods and beverages are in demand: The highest percentage of processed food and drink is seen in both urban and rural populations, indicating a widespread shift in consumer preferences towards convenience and a wider range of dietary options. It makes sense for the government to concentrate on producing processed food goods because this sector is important for employment, economic growth, and tax revenues.
• Discretionary products and services demand increases: expenditure on services (including transportation) has been the highest in the non-food category and is trailed by expenditure on durable goods (which include, among other things, automobiles, electrical appliances, and mobile phones).  
• The spending share on health and education is a concern: It is concerning that the share of spending on health care is increasing while the share on education is decreasing. Increased health care costs are placing a greater financial strain on consumers, which reduces their disposable income. If household finances place less emphasis on education, this could affect future employability and widen the economic opportunity gaps.

Changing spending preferences are creating new business opportunities

The demand for discretionary goods and services, particularly durables and transportation, could be greatly increased by the spending preferences in rural areas. Thus, the recovery of rural demand is essential for this segment to grow sustainably. Businesses are likely to target states with higher per capita income since rising income leads to a more pronounced growth in demand for these things than for needs like food.

More significantly, though, the market's maturity and breadth also determine market opportunities. States that see a decline in the disparity between spending in urban and rural areas provide penetration-led volume increase to the national GDP. Businesses can reach a bigger share of the state's population living in rural areas if state revenue growth leads to a more equitable distribution and increased spending in rural areas. Compared to states where the gap is expanding, this provides firms with access to a sizable consumer base and a sustained demand for consumer spending.  

As such, companies are capable of:

• Focus on volume growth by tapping into the growing rural middle class and previously underserved rural markets for discretionary products
• Achieve greater economies of scale in production, distribution, and marketing, leading to more competitive pricing and further stimulating rural consumption of these products
• Create opportunities through innovative products and services, such as alternate financing options

State-wise consumption patterns also offer some interesting insights into the variation of spending across food and non-food segments to businesses, according to the latest Indian Rupee forecasts and economic outlook:

Most states have been big spenders on consumer services including conveyance and entertainment, while the distribution of states’ spending on durable goods is scattered and lacks coherence.

Demand for processed food has been among the highest in most states, suggesting a shift toward ready-to-eat options. Rapid urbanization, increasing women’s participation in the workforce, and marketing and availability are driving these changing dietary habits.

When it comes to social spending, household spending on education and health is the least among most states in India. Some states have relatively higher spending on health such as Kerala and Punjab.

Government interventions will provide the much-needed thrust to consumer spending

India's economy is mostly driven by consumer demand, with private spending making up more than 60% of GDP. Thus, maintaining momentum in this important economic engine is essential.

• Address the high urban-rural consumer spending gaps: Growing incomes must also be linked to a narrowing of the gap between urban and rural consumers' consumption spending if broad-based growth is to occur. According to the Q3 Indian Rupee forecast and economic outlook, the government will need to close this disparity in several states by facilitating better access to resources and financial support for agricultural output.
• Allocate more towards health and education: There is a significant variation in household spending on health and education across different states in India.
• Curb inflation and unemployment: More so than their urban counterparts, rural consumers have been negatively impacted by weak agricultural output and cumulative inflation. Aspiring rural consumers want more affordable options, and they also expect the government to manage inflation and increase the number of jobs available to increase incomes.  

Following elections on July 23, 2024, the newly elected government—now in its third term—tabled its first union budget. This time, the policy's main thrusts were increasing the productivity and income from agriculture, generating jobs in manufacturing and for the youth, and tackling the persistent issue of micro, small, and medium-sized businesses' lack of access to financing. All of these should directly contribute to increasing supply, reducing inflation, and boosting consumer spending, particularly among middle-class and rural populations.  

In summary of this fundamental Indian Rupee forecast, analysts think that government policy initiatives will help address many of the issues raised above, and in the upcoming years, they anticipate seeing a narrowing of the spending gap between urban and rural areas, which will support further rise in total private consumption. As a result, RBI should gain encouragement that they are getting closer to a point at which easing policy looks sensible following their decision to leave interest rates on hold at 6.5% in August.  

The Indian rupee is forecasted to trade within the 87.00 - 89.00 range during 2025. 

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SAR to INR Forecast – The Latest Calls for Central Banks

Central bank rates are reaching their peak globally, and we're already starting to see rate cuts in certain regions. Here's what investment banks expect from policymakers from US and India over the next few months.

When Will Interest Rates Go Down

Federal Reserve

Current data shows sustained U.S. economic expansion, with robust activity and unemployment holding near historic lows. Despite the Federal Reserve’s current pause on rate changes, markets project possible cuts in late 2025 if inflation slows or employment weakens, signaling room for easing. Policymakers stress decisions will remain guided by incoming data to balance their dual mandate of maximum employment and stable prices. 

While no immediate adjustments are planned, the Fed maintains flexibility to respond to shifting economic conditions, underscoring its focus on prolonging growth while containing inflationary risks. This cautious, adaptive stance aims to safeguard stability without derailing the economy’s momentum, ensuring readiness to act if indicators diverge from targets.

Next FOMC meeting

Reserve Bank of India

The Reserve Bank of India’s (RBI) is projected to lower its benchmark repo rate by 25 basis points, reducing it to 6.25%, in a bid to bolster economic activity as the nation navigates global instability and internal fiscal pressures.

Recent weeks have seen overseas investors aggressively acquire Indian sovereign bonds, injecting ₹182 billion ($2.09 Billion) Consequently, yields on 10-year government securities have softened by 20 basis points from recent peaks, while overnight index swaps have dipped over 30 basis points. However, experts caution that a delayed rate cut could trigger bond market instability, potential sell-offs, and upward pressure on borrowing costs.

Simultaneously, the Indian rupee has faced sharper fluctuations under the RBI’s restrained currency management strategy under Governor Sanjay Malhotra. The currency has weakened by roughly 3% in 2024, extending a 2% decline from the previous year. Forecasts suggest the rupee could trade near 87.23 against the U.S. dollar by February’s close, depreciating further to 87.63 within six months amid a robust dollar and looming U.S. trade policy risks.

In conclusion, the RBI is widely expected to reduce rates to 6.25% this month, with a follow-up cut likely in subsequent quarters. This aligns with surging foreign bond inflows and a more volatile rupee, reflecting broader macroeconomic uncertainties and shifting global capital flows. 

SAR to INR Forecast – Technical Outlook

The SAR/INR pair shows a significant upward movement on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA) with the 14-day Relative Strength Index (RSI) standing near 77.57 overbought area.

However, traders should pay close attention to the divergence between price and the RSI as this could possibly indicate a short-term retracement to the 23.26 price level. A bullish continuation above the 23.38 could pave the way to new record highs.

SAR to INR Forecast – Institutional and AI-Algorithms Price Predictions 2025, 2026, 2030

Below is the updated data of the SAR to INR forecasts as of February 2025. It either can be altered or can be proved to be wrong as it is based on essential factors like interest rates and central bank policy, in line with market assumptions. It is important to research and analyze keeping in mind that past displays do not assure future outcomes.

SAR to INR Forecast by Reuters Poll 

A Reuters poll shows that, based on RBI data on the real effective exchange rate, the rupee is currently 8% overpriced relative to its trading peers.

This, together with the strength in the US dollar may put additional pressure on the rupee, indicating that the RBI may need to increase its frequent currency market interventions in the upcoming months.

SAR to INR Forecast by CareEdge Ratings

CareEdge Rating expects the Indian rupee to continue weaken slowly against the U.S. dollar. India’s economic growth, inflation trends, and global factors drive this outlook. A growing current account deficit and rising external debt may further strain the rupee’s value. Persistent pressure could make it harder for the currency to stay stable, affecting exporters and businesses dependent on predictable foreign exchange rates. For instance, companies importing raw materials might face higher costs, while exporters could see uneven gains. 

SAR to INR Forecast by Trading Economics

Trading Economics forecasts SAR to INR to be priced at 23.1609 by the end of Q1 2025 and at 23.2996 in one year, according to its global macro model's projections and analysts' expectations.

SAR to INR Forecast by Long Forecast

LongForecast.com SAR to INR predictions shows a 2025 closing price at 24.28 and a Riyal appreciation during the next year.

The 2026 SAR to INR forecast is showing a potential maximum rate of 25.18 and a closing rate of 24.81. However, SAR to INR forecast is a trading range within the 24.81 - 25.76 levels.

The SAR to INR forecast for the next 5 years is bullish, with the AI algorithm predicting a new all-time high of 28.34, in March 2029.

SAR to INR Forecast 2025 by AI Pickup

The Artificial Intelligence (AI) Pickup algorithm supports the statement that the strength of the prevailing trend and the live inflationary climate will continue to weaken the rupee in a long-term forecast until 2027. The AI algorithms SAR to INR forecast 2025 points towards an advance up to 24.28.

Summary of SAR to INR Forecast

• The Indian Rupee has recently breached the 86.80 level against the US Dollar and 23.15 against the SAR, but its decline may continue despite higher rate cut expectations. With the Reserve Bank of India likely to reduce its FX intervention, Indian Rupee may be under pressure due to weaker capital flows, a widening current account deficit, and global uncertainties. RBI may step back from heavy intervention but will likely implement measures to manage rupee depreciation.
• The near-term trajectory of INR will depend on RBI’s intervention strategy, foreign investment flows, the global rate cycle, and geopolitical developments. If external pressures ease and capital inflow strengthen, INR depreciation could slow. Otherwise, continued FX outflows and policy uncertainty could push SAR/INR toward the higher end of projections.
   

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Sources:

• https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx
• https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/feb/doc202421304601.pdf
• https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.html
• https://www.goldmansachs.com/intelligence/pages/gs-research/india-2024-outlook-port-of-calm-in-a-higher-for-longer-world/report.pdf
• https://www.morganstanley.com/im/publication/insights/articles/article_theindiaopportunity_ltr.pdf
• https://longforecast.com/