Indian rupee dropped 2.8% to dollar so far in 2025 – what next?

Dubai: The Indian rupee has pulled back from its all-time low of 23.95 to the dirham (87.95 to a dollar), but there is as yet nothing to suggest whether the pressure has eased completely.

The INR dropped 2.8% against the dollar since the start of the year, which meant it has ‘lagged other Asian currencies in 2025’, according to a new update on the India economy from HSBC. The more recent improvement in the INR-$ situation also has much to do with signs of weaknesses in the broader Dollar Index, much of which stems from the Trump sabre rattling over tariffs. (The Dollar Index measures the strength of the US greenback against a basket of global currencies. The Dollar Index score right now is at 103.7, well down on the 110 peak in mid-January.)
The rupee’s drop this year – which continued the weakness seen right through 2024 – has meant a bonanza for UAE and Gulf Indian expats on their remittances. They can expect some more help by way of a weak Indian rupee.
“We expect USD-INR to edge towards 88 by end-2025 owing to broad-based dollar strength,” the HSBC report states. “However, less favourable interest rate differentials (with the US Fed rate) and increased net-short FX position of RBI points towards increased downside risks for the INR.”

Watch these trends

“From our perspective, the INR is likely to remain under pressure,” says the HSBC report, and it cites three key reasons for such an outcome.

Indian equities continue to experience sizable outflows, while the bond market inflows appear to have stalled.

RBI’s rate cut in April means that India’s interest rate differential advantage with the US is likely to erode in the next few months.

India’s FX position is weaker than what we see on the surface. (India’s FX reserves as of February 14 was $635 billion, after a ‘modest’ increase.)

On the first point that the HSBC report notes, about Indian stocks being whipsawed by foreign fund outflows, it could take time for some clarity to come through.

Even then, HSBC reckons that domestic investors will continue to pull their weight in the interim. “We see a rebound in growth providing a backstop for corporate earnings,” the report notes. “We prefer large-cap stocks over the mid- and small-cap stocks..”. Among sectors, the focus would be on financials, healthcare and industrial sectors.